10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 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	47305-2400
(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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the last sale price of such stock on the Nasdaq Global Market as of June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $139.2 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date. As of March 15, 2017, there were 7,344,233 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

PART III of Form 10-K-Portions of registrant’s Proxy Statement for its 2017 Annual Meeting of Stockholders. 

MutualFirst Financial, Inc.

Form 10-K Annual Report for the Year Ended December 31, 2016

Table of Contents

		Page
Part I
Item 1	Business	1
Item 1A	Risk Factors	31
Item 1B	Unresolved Staff Comments	43
Item 2	Properties	43
Item 3	Legal Proceedings	43
Item 4	Mine Safety Disclosure	43
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	44
Item 6	Selected Financial Data	46
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	72
Item 8	Financial Statements and Supplementary Data	75
Item 9	Changes in and Disagreements With Accountants in Accounting and Financial Disclosure	132
Item 9A	Controls and Procedures	132
Item 9B	Other Information	135
Part III
Item 10	Directors, Executive Officers and Corporate Governance	135
Item 11	Executive Compensation	136
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	136
Item 13	Certain Relationships and Related Transactions, and Director Independence	137
Item 14	Principal Accountant Fees and Services	137
Part IV
Item 15	Exhibits and Financial Statement Schedules	138
SIGNATURES		141
EXHIBIT INDEX		142

Item 1. Business

General

MutualFirst Financial, Inc., a Maryland corporation (“MutualFirst” or the “Company”), is the sole owner of MutualBank (“MutualBank” or the “Bank”). The Bank is an Indiana commercial bank regulated by the Indiana Department of Financial Institutions (“IDFI”) and the Federal Deposit Insurance Corporation (“FDIC”). MutualFirst is a bank holding company subject to regulation by the Board of Governors of the Federal Reserve System (“FRB”). The words “we,” “our” and “us” in this Form 10-K refer to MutualFirst and MutualBank on a consolidated basis, unless indicated otherwise herein.

At December 31, 2016, we had total assets of $1.6 billion, loans of $1.2 billion, deposits of $1.2 billion and stockholders’ equity of $140.0 million. Our executive offices are located at 110 E. Charles Street, Muncie, Indiana 47305-2400. Our common stock is traded on the Nasdaq Global Market under the symbol “MFSF.” For more general information about our business, and other 2016 material transactions and results, see “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation - Overview and Significant Events in 2016.”

Forward-Looking Statements

This Form 10-K 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” 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:

· statements of our goals, intentions and expectations;

· statements regarding our business plans, prospects, growth and operating strategies;

· statements regarding the asset quality of our loan and investment portfolios; and

· 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 following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

· 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;

· changes in general economic conditions, either nationally or in our market areas;

· changes in the monetary and fiscal policies of the U.S. Government, including policies of the Treasury and the FRB;

· 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;

· 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;

1

· decreases in the secondary market for the sale of loans that we originate;

· results of examinations of us by the IDFI, FDIC, 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;

· 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, changes in regulatory capital requirements or the interpretation of regulatory capital or other rules;

· our ability to attract and retain deposits;

· increases in premiums for deposit insurance;

· management’s assumptions in determining the adequacy of the allowance for loan losses;

· our ability to control operating costs and expenses;

· the use of estimates in determining fair value of certain assets, which estimates may prove to be incorrect and result in significant losses due to declines in valuation;

· difficulties in reducing risks associated with the loans on our balance sheet;

· staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;

· a failure or security breach in the computer systems (or the third party vendors who provide such services) on which we depend;

· our ability to retain members of our senior management team;

· costs and effects of litigation, including settlements and judgments;

· our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

· increased competitive pressures among financial services companies;

· changes in consumer spending, borrowing and savings habits;

· the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;

· adverse changes in the securities markets;

· changes in our ability and the cost to access the capital markets;

· inability of key third-party providers to perform their obligations to us;

· 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

· other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described elsewhere in this Form 10-K.

Some of these and other factors are discussed in “Item 1A-Risk Factors” and elsewhere in this Form 10-K. Certain of these developments could have an adverse impact on our financial position and results of operations.

2

Any of these forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this Form 10-K or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this Form 10-K might not occur, and you should not put undue reliance on any forward-looking statements.

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.

Market Area

We are a community-oriented bank offering a variety of financial services to meet the needs of the communities we serve. We are headquartered in Muncie, Indiana and offer our financial services through 27 full service retail financial center offices in Allen, Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash counties in Indiana. MutualBank also has trust offices in Fishers and Crawfordsville, Indiana and a loan origination office in New Buffalo, Michigan. The Bank has a subsidiary, Summit Mortgage, Inc., that operates a mortgage banking firm in Ft. Wayne, Indiana. In addition, we originate residential mortgage and commercial loans in the counties contiguous to those counties. We also originate indirect consumer loans throughout Indiana and contiguous states as described in “Lending Activities - Other Consumer Lending.”

The market areas where MutualBank operates in Indiana have historically experienced an unemployment rate that exceeded the federal and state unemployment rates, however in last two years the rate in our market areas was reduced to below the state and federal rates. At the end of 2016, the unemployment rate (not seasonally adjusted) was 4.5% at the federal level and 4.0% at the state level, compared to 4.8% and 4.6% at the end of 2015 at the federal and state level, respectively. Our footprint had an unemployment rate of 3.9% and 4.5% at year-end 2016 and 2015, respectively. During 2016, improvements in local home values, unemployment and the local economy resulted in increasing levels of home sales and residential mortgage activity.

Competition

We face strong competition from other banks, credit unions, mortgage bankers and finance companies in originating commercial, real estate and other loans and in attracting deposits. Our wealth management division faces strong competition from other banks, brokerage firms, financial advisers and trust companies. We attract deposits primarily through our financial center network. Competition for deposits comes principally from local banks and credit unions, but also comes from the availability of other investment opportunities, including mutual funds. We compete for deposits by offering superior service and a variety of deposit accounts at competitive rates. We also offer alternative investment products through a broker/dealer.

Internet Website and Information

The Company maintains a website at www.bankwithmutual.com - “About Us – Investor Relations.” The information contained on that website is not included as part of or incorporated by reference into this Form 10-K. The Company’s filings with the SEC are available on that website and also are available on the SEC website at sec.gov - “Search for Company Filings.”

Lending Activities

General. Our loans carry either a fixed- or an adjustable-rate of interest. At December 31, 2016, our net loan portfolio totaled $1.2 billion, which constituted 74.8% of our total assets. Our net loan portfolio, excluding loans held for sale, increased by 8.3% in 2016, primarily due to increased commercial and non- real estate consumer loans; however, that increase was partially reduced by a decrease in consumer mortgage loans.

3

Loans up to $1.0 million may be approved by certain individual loan officers. Loans in excess of $1.0 million, but not in excess of $2.0 million, may be approved by the combined authority of two officers that have loan authority up to $1.0 million individually. Loans between $2.0 million, but no more than $5.0 million, may be approved by a majority vote of the Loan Committee. All loans in excess of $5.0 million must be approved by the Board of Directors. Commercial Banking Officers may advance additional credit exposure for a commercial loan relationship requiring Board approval up to the lesser of: 10% of the existing previously approved credit exposure to the client, or $100,000. Any additional exposure approved under the 10% Rule must be approved by the Senior Vice President of Commercial Banking or his designee, and reported to the appropriate Loan Committee during the next meeting.

Major Loan Customers. At December 31, 2016, the maximum amount that we could lend to any one borrower and the borrower’s related entities was approximately $22.3 million. At December 31, 2016, our five largest lending relationships were with commercial borrowers and public entities and constituted an aggregate of $63.8 million in loans and commitments issued, or 5.4% of our $1.2 billion gross loan portfolio, with $45.7 million in loans outstanding. As of December 31, 2016, our largest lending relationship to a single borrower or group of related borrowers consisted of one loan with a total commitment of $15.9 million, with an $8.1 million outstanding balance at year-end. This loan is secured primarily by commercial real estate and was in compliance with loans terms as of December 31, 2016.

Our next four largest relationships consist of $13.2 million in loans and commitments secured primarily by commercial real estate with $6.5 million outstanding; $12.2 million in loans and commitments issued and outstanding which is secured by commercial real estate; $11.4 million in loans and commitments which is secured primarily by commercial business assets with $9.4 million outstanding; and $11.1 million in loans and commitments issued secured primarily by municipal bonds with $9.5 million outstanding. As of December 31, 2016, all loans within these relationships were performing as agreed.

4

The following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages as of the dates indicated.

	December 31,
	2016						2015						2014						2013						2012
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate
Commercial	$	302,577			25.71	%	$	236,895			21.75	%	$	198,019			19.25	%	$	200,817			20.24	%	$	203,613			20.45	%
Commercial construction and development		22,453			1.91			15,744			1.45			33,102			3.22			13,321			1.34			17,462			1.75
Consumer closed end first mortgage		482,911	(1)		41.04			497,442	(2)		45.66			523,203	(3)		50.87			533,160	(4)		53.74			533,527	(5)		53.58
Consumer open end and junior liens		71,222			6.05			70,990			6.52			71,073			6.91			69,354			6.99			74,714			7.50
Total real estate loans		879,163			74.71			821,071			75.38			825,397			80.25			816,652			82.31			829,316			83.28
Other loans
Consumer loans
Auto		18,939			1.61			15,480			1.42			14,712			1.43			14,856			1.50			15,572			1.57
Boat/RV		141,602			12.03			123,621			11.35			94,761			9.21			79,419			8.01			76,416			7.68
Other		5,892			0.51			6,171			0.56			5,184			0.51			5,766			0.58			6,598			0.66
Total consumer other		166,433			14.15			145,272			13.33			114,657			11.15			100,041			10.09			98,586			9.91
Commercial and industrial		131,103			11.14			123,043			11.29			88,474			8.60			75,402			7.60			67,773			6.81
Total other loans		297,536			25.29			268,315			24.62			203,131			19.75			175,443			17.69			166,359			16.72
Total loans receivable, gross		1,176,699			100.00	%		1,089,386			100.00	%		1,028,528			100.00	%		992,095			100.00	%		995,675			100.00	%
Undisbursed loans in process		(8,691	)					(7,432	)					(9,285	)					(13,346	)					(7,418	)
Unamortized deferred loan costs, net		5,557						4,882						3,583						2,517						2,432
Allowance for loan losses		(12,382	)					(12,641	)					(13,168	)					(13,412	)					(16,038	)
Total loans receivable, net	$	1,161,183					$	1,074,195					$	1,009,658					$	967,854					$	974,651

(1) Includes loans held for sale of $4.1 million.

(2) Includes loans held for sale of $6.0 million.

(3) Includes loans held for sale of $6.1 million.

(4) Includes loans held for sale of $1.9 million.

(5) Includes loans held for sale of $5.1 million.

5

The following table shows the composition of our loan portfolio by fixed- and adjustable-rate at the dates indicated.

	December 31,
	2016						2015						2014						2013						2012
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Fixed-Rate Loans
Real estate
Commercial	$	66,898			5.69	%	$	72,263			6.63	%	$	85,230			8.29	%	$	88,031			8.87	%	$	118,828			11.93	%
Commercial construction and development		1,962			0.17			4,732			0.43			3,941			0.38			2,833			0.29			3,673			0.37
Consumer closed end first mortgage		371,111	(1)		31.54			381,372	(2)		35.01			392,441	(3)		38.16			398,541	(4)		40.17			387,353	(5)		38.90
Consumer open end and junior liens		22,116			1.88			17,106			1.57			19,479			1.89			22,990			2.32			27,832			2.80
Total real estate loans		462,087			39.28			475,473			43.64			501,091			48.72			512,395			51.65			537,686			54.00
Consumer		164,483			13.98			143,171			13.14			112,295			10.92			97,422			9.82			95,448			9.59
Commercial and industrial		52,932			4.50			61,702			5.66			43,378			4.22			32,369			3.26			30,321			3.04
Total fixed-rate loans		679,502			57.76			680,346			62.44			656,764			63.86			642,186			64.73			663,455			66.63
Adjustable-Rate Loans
Real estate
Commercial		235,679			20.03			164,632			15.12			112,789			10.97			112,786			11.37			84,785			8.52
Commercial construction and development		20,491			1.73			11,012			1.02			29,161			2.83			10,488			1.06			13,789			1.38
Consumer closed end first mortgage		111,800			9.50			116,070			10.65			130,762			12.71			134,619			13.57			146,174			14.68
Consumer open end and junior liens		49,106			4.17			53,884			4.95			51,594			5.02			46,364			4.67			46,882			4.71
Total real estate loans		417,076			35.43			345,598			31.74			324,306			31.53			304,257			30.67			291,630			29.29
Consumer		1,950			0.17			2,101			0.19			2,362			0.23			2,619			0.26			3,138			0.32
Commercial and industrial		78,171			6.64			61,341			5.63			45,096			4.38			43,033			4.34			37,452			3.76
Total adjustable-rate loans		497,197			42.24			409,040			37.56			371,764			36.14			349,909			35.27			332,220			33.37
Total loans receivable, gross		1,176,699			100.00	%		1,089,386			100.00	%		1,028,528			100.00	%		992,095			100.00	%		995,675			100.00	%
Undisbursed loans in process		(8,691	)					(7,432	)					(9,285	)					(13,346	)					(7,418	)
Unamortized deferred loan costs, net		5,557						4,882						3,583						2,517						2,432
Allowance for loan losses		(12,382	)					(12,641	)					(13,168	)					(13,412	)					(16,038	)
Total loans receivable, net	$	1,161,183					$	1,074,195					$	1,009,658					$	967,854					$	974,651

(1) Includes loans held for sale of $4.1 million.

(2) Includes loans held for sale of $6.0 million.

(3) Includes loans held for sale of $6.1 million.

(4) Includes loans held for sale of $1.9 million.

(5) Includes loans held for sale of $5.1 million.

6

The following schedule illustrates the contractual maturity of our loan portfolio at December 31, 2016. Mortgages that have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The total amount of loans due after December 31, 2017 that have predetermined interest rates is $647.2 million, and the total amount of loans due after such date which have floating or adjustable interest rates is $411.4 million. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.

	Real Estate
	Consumer Closed End First Mortgage(1)					Consumer Open End and Junior Liens					Commercial					Construction and Development					Consumer					Commercial Business					Total
	Amount		WAR(3)			Amount		WAR(3)			Amount		WAR(3)			Amount		WAR(3)			Amount		WAR(3)			Amount		WAR(3)			Amount		WAR(3)
	(Dollars in thousands)
Due During Years Ending December 31,
2017(2)	$	5,351		4.10	%	$	442		6.57	%	$	42,501		4.60	%	$	10,109		4.03	%	$	2,361		5.76	%	$	53,321		4.40	%	$	114,085		4.46	%
2018		1,204		4.28			355		6.36			14,726		4.66			247		4.25			2,535		6.14			11,828		3.34			30,895		4.28
2019		1,930		4.61			637		6.53			13,308		4.57			1,263		4.24			4,880		5.63			17,103		3.93			39,121		4.45
2020 & 2021		11,861		3.86			2,329		6.74			13,201		4.70			6,337		3.56			21,065		5.15			22,824		4.31			77,617		4.55
2022 & 2023		17,870		3.27			3,504		5.33			16,960		4.44			343		5.75			11,593		6.21			8,835		4.50			59,105		4.50
2024 to 2038		283,835		3.65			63,955		4.19			184,603		4.34			4,154		4.53			123,999		5.70			14,805		4.78			675,351		4.30
2039 & after		156,797		3.99			-		-			17,278		4.00			-		-			-		-			2,387		4.64			176,462		4.00
Total	$	478,848		3.76	%	$	71,222		4.38	%	$	302,577		4.40	%	$	22,453		4.03	%	$	166,433		5.67	%	$	131,103		4.20	%	$	1,172,636		4.30	%

(1) Does not include mortgage loans held for sale.

(2) Includes demand loans, loans having no stated maturity and overdraft loans.

(3) Weighted Average Rate

7

Consumer Closed End First Mortgages. We originate loans secured by first mortgages on owner-occupied, one- to four-family residences in our market areas for purchase, refinance, home equity and construction purposes. At December 31, 2016, these loans totaled $482.9 million, or 41.0% of our gross loan portfolio.

We generally underwrite and document our one- to four-family loans based on the loan applicant’s employment and credit history and the appraised value of the subject property, consistent with secondary market standards or other prudent underwriting guidelines. For loans with a loan-to-value ratio in excess of 80%, we generally require private mortgage insurance to reduce our exposure to below 80%. Properties securing our one- to four-family loans are appraised or evaluated consistent with regulatory requirements and prudent lending principles. Origination and servicing practices include perfection of our lien position and appropriate monitoring of insurance and tax payments.

We generally underwrite and document our one- to four-family first lien position home equity loans based on the loan applicant's employment, credit history and the appraised value of the subject property, consistent with prudent underwriting guidelines.  Nearly all first lien home equity loans have a loan-to-value maximum of 80% of value at origination.  Exceptions would be limited to work-out loan circumstances.  Properties securing our one- to four-family loans are appraised or evaluated consistent with regulatory requirements and prudent lending principles.

We originate consumer first mortgage one- to four-family loans on either a fixed- or adjustable-rate basis, and generally maintain a tax or insurance escrow account for these loans. Our pricing strategy for mortgage loans includes setting interest rates that are competitive with the secondary market and other local financial institutions and are consistent with our internal needs. Adjustable-rate mortgage or ARM loans are offered with initial fixed rate terms between one and 10 years. After the initial period, the interest rate for each ARM loan adjusts annually for the remainder of the term of the loan using a margin over the standard one-year treasury index. During fiscal 2016, we originated $14.8 million of one- to four-family ARM loans and $219.7 million of one- to four-family fixed-rate mortgage loans. By way of comparison, during fiscal 2015, we originated $11.4 million of one- to four-family ARM loans and $204.4 million of one- to four-family fixed-rate mortgage loans.

Fixed-rate loans secured by one- to four-family residences have contractual maturities of up to 30 years and are generally fully amortizing, with payments due monthly. A majority of loans with fixed-rate maturities in excess of 15 years are sold on the secondary market. Some loans are retained if their terms meet current portfolio needs consistent with balance sheet objectives. These retained loans normally remain outstanding, however, for a substantially shorter period of time because of home sales, refinancing and other prepayments. A significant change in interest rates could alter considerably the average life of a residential loan in our portfolio. Our one- to four-family loans are generally not assumable, do not contain prepayment penalties and do not permit negative amortization of principal. Most are written using underwriting guidelines that make them readily saleable in the secondary market. At December 31, 2016, our fixed-rate one- to four-family mortgage loan portfolio totaled $371.1 million, or 31.5% of our gross loan portfolio.

Our one- to four-family residential ARM loans are fully amortizing loans with contractual maturities of up to 30 years, with payments due monthly. Our ARM loans generally provide for specific minimum and maximum interest rates, with a lifetime cap and floor, and a periodic adjustment on the interest rate over the rate in effect on the date of origination. As a consequence of using caps, the interest rates on these loans may not be as rate sensitive as our cost of funds. In order to remain competitive in our market areas, we sometimes originate ARM loans at initial rates below the fully indexed rate. ARM loans generally pose different credit risks than fixed-rate loans, primarily because as interest rates rise, the borrower’s required payments increase, which may increase the potential for default. Our payment history for ARM loans has not been substantially different from fixed rate loans. See “Asset Quality - Non-performing Assets” and “Classified Assets.” At December 31, 2016, our one- to four-family ARM loan portfolio totaled $111.8 million, or 9.5% of our gross loan portfolio.

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Construction-permanent loans on one- to four-family residential properties are obtained through referral business with builders, from walk-in customers and through referrals from realtors and architects. The applicant must submit complete plans, specifications and costs of the project to be constructed, which, along with an independent appraisal, are used to determine the value of the subject property. Loans are based on the lesser of the current appraised value and/or the cost of construction, including the land and the building. We generally conduct regular inspections of the construction project being financed. Residential construction loans are done with one closing for both the construction period and the long-term financing. Loans are generally granted with a construction period between six and 12 months. During the construction phase, the borrower generally pays interest only on a monthly basis, and the loan is automatically converted to amortizing payments upon completion of the construction. Single family construction loans with loan-to-value ratios over 80% usually require private mortgage insurance.

Consumer Open End and Junior Liens. At December 31, 2016, our consumer loans on residential properties, including home equity lines of credit and subordinate home improvement loans, totaled $71.2 million, or 6.5% of our gross loan portfolio. These loans may be originated in amounts, together with the amount of the existing first mortgage, of up to 100% of the value of the property securing the loan. The term to maturity on our home equity and home improvement loans may be up to 15 years. Most home equity lines of credit have a maximum term to maturity of 20 years and require a minimum monthly payment based on the outstanding loan balance per month, which amount may be re-borrowed at any time. A limited number of home equity lines of credit are approved with monthly payments of accrued interest only. Other consumer loan terms vary according to the type of collateral, length of contract and creditworthiness of the borrower.

Commercial Real Estate Lending. We offer a variety of commercial real estate (CRE) loans for acquisition and renovation. These loans are secured by the real estate and improvements financed, and the collateral ranges from industrial and commercial buildings to churches, office buildings and multi-family housing complexes. We also have a limited amount of farm loans. At December 31, 2016, commercial real estate loans, including multi-family, totaled $302.6 million, or 25.7% of our gross loan portfolio.

Our loans secured by commercial real estate are originated with either a fixed or adjustable interest rate. The interest rate on adjustable-rate loans is based on a variety of indices, generally determined through negotiation with the borrower. Loan-to-value ratios on our commercial real estate loans typically do not exceed 80% of the appraised value, as of origination, of the property securing the loan. These loans typically require monthly payments, may not be fully amortizing and generally have maximum amortizations of 20 years. Loans with amortizations over 20 years require and loan-to-value ratio of 75% or less.

Loans secured by commercial real estate are underwritten based on the income-producing potential of the property and the financial strength of the borrower. For income-producing properties, net operating income must be sufficient to cover the payments related to the outstanding debt. Owner-occupied CRE loans are underwritten based on the borrower’s ability to generate cash flow sufficient to repay the loan. We may require personal guarantees of the borrowers in addition to the real estate as collateral for such loans. We also generally require an assignment of rents or leases in order to be assured that the cash flow from the real estate can be used to repay the debt. Appraisals on properties securing commercial real estate loans are performed by qualified independent appraisers approved by MutualBank’s Board of Directors, consistent with regulatory requirements. See “Loan Originations, Purchases, Sales and Repayments” in this Item 1. In order to monitor the adequacy of cash flows on CRE loans, the borrower is required to provide periodic financial information for loans in excess of $250,000.

Loans secured by commercial real estate are generally larger and involve a greater degree of credit risk than one- to four-family residential mortgage loans. Commercial real estate loans typically involve large balances to single borrowers or groups of related borrowers. Because payments on loans secured by commercial real estate are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced, or if leases are not obtained or renewed, the borrower’s ability to repay the loan may be impaired. See “Asset Quality - Non-performing Assets” in this Item 1.

9

Construction and Development Lending. MutualBank makes a variety of commercial loans for the purpose of construction or development of commercial real estate.

Existing residential development loans are typically provided on property located within our market areas and are granted to developers and builders with previous borrowing experience with MutualBank. Financing of a development may include funding of land acquisition and development costs for lots as well as individual construction loans for speculative or pre-sold homes. New activity in residential development and construction lending has been limited by economic conditions for the past several years. We also provide construction-permanent financing for owner-occupied commercial properties for our business customers in our market areas as well as some income-producing property to established borrowers. We have a limited number of commercial real estate development loans. At December 31, 2016, we had $22.5 million in construction and development loans outstanding, representing 1.9% of our gross loan portfolio.

Loans financing land development may include funding the acquisition of the land, the infrastructure and lot sales. Development loans are secured by real estate and repaid through proceeds from the sale of lots. The maximum loan amount should not exceed 75% of the appraised value and projected lot sales should show full payout within 24-36 months of each phase being financed. Where the development loan is to be repaid through lot sales to third parties, the loan should be paid in full when no more than 80% of the lots in the phase or development are sold. Release payments should not be less than 85% of the net sales proceeds, or 125% of the original committed amount per lot, whichever is greater.

Construction financing must be supported by prints and specs, and an appraisal by an approved appraiser. Construction draws must be supported by a detailed list of work completed, and where appropriate, lien waivers from all contractors. All construction loans should have a maturity date with a written end financing commitment. We also provide end financing to qualified borrowers. Our maximum advance on residential pre-sold and owner occupied commercial loans is 80% of appraised value.

Because of the uncertainties inherent in estimating construction and development costs and the market for the project upon completion, there is risk inherent in the accuracy of estimated total loan funds required to complete a project, the related loan-to-value ratios and the likelihood of ultimate success of the project. These loans also involve many of the same risks discussed above regarding commercial real estate loans and tend to be more sensitive to general economic conditions than many other types of loans. Economic conditions in our market could cause borrowers to be unable to repay development loans due to reduced ability to market the properties consistent with original pro-forma estimates. However, we have seen stabilization in our markets which is reflected in the continued decrease in non-performing assets.

Other Consumer Lending. Consumer loans, other than those secured by real estate, generally have shorter terms to maturity and carry higher rates of interest than residential mortgage loans. This reduces our exposure to interest rate risk on these loans. In addition, consumer loan products help to expand and create stronger ties to our customer base by increasing the number of customer relationships and providing cross-marketing opportunities. We offer a variety of secured consumer loans, including auto, boat and recreational vehicle loans, and loans secured by savings deposits. We also offer credit cards and unsecured consumer loans. We originate consumer loans both in our market area through our financial centers and throughout Indiana as well as making consumer loans to customers residing in contiguous states through our indirect lending program. We employ credit scoring models for these types of consumer loan applications. These models evaluate credit and application attributes, with a review of the borrower’s employment and credit history and an assessment of the borrower’s ability to repay the loan. Consumer loans may entail greater risk than one- to four-family residential mortgage loans, especially consumer loans secured by rapidly depreciable assets, such as automobiles, boats and recreational vehicles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and, thus, are more likely to be adversely affected by economic downturn, job loss, divorce, illness or personal bankruptcy. At December 31, 2016, our consumer loan portfolio, excluding real estate secured loans, totaled $166.4 million, or 14.2% of our gross loan portfolio.

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At December 31, 2016, auto loans totaled $18.9 million, or 1.6% of our gross loan portfolio. Auto loans may be written for up to six years and usually have a fixed rate of interest. Loan-to-value ratios are up to 100% of the MSRP or 120% of invoice for new autos and 110% of value on used cars, based on valuation from official used car guides. Loans for boats and recreational vehicles totaled $141.6 million at December 31, 2016, or 12.0% of our gross loan portfolio. Approximately $136.0 million of other consumer loans at December 31, 2016 had been originated indirectly through dealers and retailers. We generally buy indirect auto, boat and recreational vehicle loans on a rate basis, paying the dealer a cash payment for loans with an interest rate in excess of the rate we require. This premium is amortized over the remaining life of the loan. As specified in written agreements with these dealers, prepayments or delinquencies are charged to future amounts owed to that dealer, with no dealer reserve or other guarantee of payment if the dealer stops doing business with us.

Commercial Business Lending. At December 31, 2016, commercial business loans totaled $131.1 million, or 11.1% of our gross loan portfolio. Most of our commercial business loans have been extended to finance businesses in our market area. Credit accommodations extended include lines of credit for working capital needs, term loans to purchase capital goods and real estate, development lending to foster residential, business and community growth and agricultural lending for inventory and equipment financing.

Our commercial business lending policy includes credit file documentation and analysis of the borrower’s background, capacity to repay the loan, the adequacy of the borrower’s capital and collateral as well as an evaluation of other conditions affecting the borrower. Analysis of the borrower’s past, present and future cash flows also is an important aspect of our credit analysis. We may obtain personal guarantees on our commercial business loans. Nonetheless, these loans are believed to carry higher credit risk than residential loans. Unlike residential mortgage loans, commercial business loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may substantially depend on the success of the business itself (which, in turn, often depends in part upon general economic conditions). Our commercial business loans are usually secured by business assets. However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.

The terms of loans extended on the security of machinery and equipment are based on the projected useful life of the machinery and equipment, generally not to exceed seven years. Lines of credit generally are available to borrowers for up to 12 months, and may be renewed by us after an annual review of current financial information.

We issue a few financial-based standby letters of credit which are offered at competitive rates and terms and are generally on a secured basis. We continue to expand our volume of commercial business loans.

Loan Originations, Purchases, Sales and Repayments. We originate loans through referrals from real estate brokers and builders, our marketing efforts, our existing and walk-in customers, and through our subsidiary, Summit Mortgage, Inc. Historically, we have originated many of our non-real estate consumer loans through relationships with dealerships. While we originate adjustable-rate and fixed-rate loans, our ability to originate loans depends upon customer demand for loans in our market areas. Demand is affected by local competition, interest rate environment and general market conditions. During the last several years, due to low market rates of interest, our dollar volume of fixed-rate, one- to four-family loans has exceeded the dollar volume of the same type of adjustable-rate loans. As part of our interest rate risk management efforts, we typically sell our fixed rate, one- to four-family residential loans, with terms exceeding equal to or greater than 15 years, on the secondary market. We have occasionally purchased adjustable rate one- to four-family residential and commercial real estate loans.

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In periods of economic uncertainty, the ability of financial institutions, including us, to originate or purchase large dollar volumes of loans may be substantially reduced or restricted, with a resultant decrease in interest income.

The Company originates consumer loans, other than loans secured by real estate, in Indiana and contiguous states through our indirect lending program. The indirect lending consumer portfolio consists of loans for autos, boats and recreational vehicles.

During the year ended December 31, 2016, we sold $152.1 million of one- to four-family mortgage loans on the secondary market to FHLMC, Federal Home Loan Bank of Indianapolis (“FHLBI”) and other investors. As part of our interest rate risk management, the Company chose to sell these loans and recognized a gain on sale of $4.8 million. Servicing was retained on all loans originated through MutualBank but not through our subsidiary, Summit Mortgage.

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The following table shows our loan origination, purchase, sale and repayment activities for the years indicated. Table includes net growth in existing lines of credit as well as renewals.

	Year Ended December 31,
	2016		2015		2014
	(Dollars in thousands)
Originations by type
Adjustable rate
Real estate
Commercial	$	57,026	$	28,565	$	19,047
Commercial construction and development		190		1,505		798
Consumer closed end first mortgage		14,790		11,372		18,222
Consumer open end and junior liens		16,732		15,512		14,556
Non-real-estate
Consumer		266		1,047		40
Commercial and industrial		6,609		5,767		2,719
Total adjustable-rate		95,613		63,768		55,382
Fixed Rate
Real estate
Commercial		13,412		3,201		9,998
Commercial construction and development		10		1,000		697
Consumer closed end first mortgage		219,714		204,393		114,212
Consumer open end and junior liens		3,263		3,891		2,884
Non-real-estate
Consumer		64,446		67,117		49,062
Commercial and industrial		11,163		26,870		15,985
Total fixed-rate		312,008		306,472		192,838
Total loans originated		407,621		370,240		248,220
Purchases
Real estate
Consumer closed end first mortgage		183		144		1,653
Total loans purchased		183		144		1,653
Total additions		407,804		370,384		249,873
Sales and Repayments
Sales
Real estate
Consumer closed end first mortgage		152,067		145,437		62,765
Total loans sold		152,067		145,437		62,765
Principal repayments		168,956		162,342		146,368
Total reductions		321,023		307,779		209,133
Increase (decrease) in other items, net		2,135		2,081		(3,188	)
Net increase	$	88,916	$	64,686	$	37,552

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Asset Quality

Collection Procedures. When a borrower fails to make a payment on a mortgage loan on or before the default date, a late charge and delinquency notice is mailed. All delinquent accounts are reviewed by a loss mitigation counselor, who attempts to cure the delinquency by contacting the borrower once the loan is 30 days past due. If the loan becomes 30 days delinquent, the loss mitigation counselor will generally contact the borrower by phone or send a letter to the borrower in order to identify the reason for the delinquency. Once the loan becomes 60 days delinquent, the borrower is asked to pay the delinquent amount in full, or establish an acceptable repayment plan to bring the loan current. Prior to foreclosure, a drive-by inspection is made to determine the condition of the property. If the account becomes 120 days delinquent, and an acceptable repayment plan has not been agreed upon, a collection officer will generally refer the account to legal counsel, with instructions to prepare a notice of intent to foreclose. The notice of intent to foreclose allows the borrower up to 30 days to bring the account current. During this 30-day period, the loss mitigation counselor may accept a repayment plan from the borrower that would bring the account current prior to foreclosure.

For consumer loans, a similar collection process is followed, with the initial written contact being made once the loan is 20 days past due.

Commercial loan relationships exceeding $250,000 are reviewed on a regular basis by the commercial credit department.  Larger relationships are monitored through a system of internal and external loan review.  All relationships that are deemed to warrant special attention are monitored at least quarterly.  Individual commercial officers maintain communication with borrowers and recommend action plans to a Loan Quality Review committee which meets monthly to discuss credits graded Special Mention or worse.  The Asset Classification committee meets quarterly and establishes specific allocations, based on appraisals or discounted cash flow analysis, for relationships that are deemed to be under-collateralized and at risk of non-payment.  Collection and loss mitigation efforts are a cooperative effort between the Commercial Loan Department and the Risk Management Division.

Delinquent Loans. The following table sets forth, as of December 31, 2016, the amounts and categories of delinquent loans that were still accruing interest.

	Accruing Loans Delinquent For
	30 to 59 Days			60 to 89 Days
	(Dollars in thousands)
Real estate
Commercial	$	854		$	142
Commercial construction and development		-			-
Consumer closed end first mortgage		6,718			1,457
Consumer open end and junior liens		468			166
Consumer loans		1,568			356
Commercial and industrial		497			32
Total	$	10,105		$	2,153
Total as a percent of total loans		0.9	%		0.2	%

Non-performing Assets. The table below sets forth the amounts and categories of non-performing assets in our loan portfolio at the dates indicated. Generally, loans are placed on non-accrual status when the loan becomes more than 90 days delinquent or sooner when collection of interest becomes doubtful. At December 31, 2016, we had troubled debt restructurings totaling $4.1 million, $1.1 million of which were included in non-accruing loans. Troubled debt restructurings involve forgiving a portion of interest or principal or making other adjustments to assist a borrower who is unable to meet the original terms of the loan. These restructurings are included in non-accruing loans until they perform according to the modified terms for six months. Then, if continued payments under the modified terms are deemed probable, and it is anticipated all principal will be recovered, they are removed from non-accrual status. Foreclosed assets include assets acquired in settlement of loans.

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	December 31,
	2016			2015			2014			2013			2012
	(Dollars in thousands)
Non-accruing loans(1):
Real estate:
Commercial real estate	$	912		$	2,356		$	2,023		$	1,349		$	2,450
Commercial construction and development		-			-			209			1,103			5,989
Consumer closed end first mortgage		3,626			3,592			3,499			4,057			11,030
Consumer open end and junior liens		335			783			658			421			1,396
Total real estate loans		4,873			6,731			6,389			6,930			20,865
Other loans:
Consumer		253			148			218			361			1,230
Commercial and industrial		18			25			605			1,109			1,315
Total other loans		271			173			823			1,470			2,545
Total non-accruing loans		5,144			6,904			7,212			8,400			23,410
Accruing loans delinquent 90 days or more:
Real estate:
Consumer closed end first mortgage		237			267			226			175			177
Consumer open end and junior liens		-			-			-			13			96
Total		237			267			226			188			273
Total nonperforming loans		5,381			7,171			7,438			8,588			23,683
Foreclosed assets:
Real estate:
Commercial real estate		215			62			1,366			2,477			1,138
Construction and development		-			974			34			1,699			50
Consumer closed end first mortgage		502			906			1,429			3,974			5,757
Other loans:
Consumer		481			513			476			283			755
Commercial business		-			-			-			-			-
Total foreclosed assets		1,198			2,455			3,305			8,433			7,700
Total non-performing assets	$	6,579		$	9,626		$	10,743		$	17,021		$	31,383
Total as a percentage of total assets		0.42	%		0.65	%		0.75	%		1.22	%		2.21	%

⁽¹⁾ Includes non-performing troubled debt restructurings.

For the year ended December 31, 2016, gross interest income that would have been recorded had these non-accruing loans been current in accordance with their original terms amounted to $273,000. The amount included in interest income on these loans for the year ended December 31, 2015, was $101,000.

See Item 7 –“ Management’s Discussion and Analysis of Financial Condition and Results of Operation - Financial Condition at December 31, 2016 Compared to December 31, 2015 - Delinquencies and Non-performing Assets” for more information on our nonperforming assets.

Classified Assets. Our regulators require that we classify loans and other assets, such as debt and equity securities considered to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

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When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan losses in an amount deemed prudent by management and approved by the board of directors. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by our regulators, which may order the establishment of additional general or specific loss allowances.

In connection with the filing of the Bank’s periodic reports in accordance with our classification of assets policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of management’s review, at December 31, 2016, we had classified $11.4 million of the Bank’s assets as substandard or doubtful; $1.2 million in other real estate owned and repossessed assets, $10.2 million in substandard loans. The total amount classified represented 8.1% of our stockholders’ equity and 0.7% of our assets at December 31, 2016, compared to 12.6% and 1.2%, respectively, at December 31, 2015.

Provision for Loan Losses. We recorded a provision for loan losses during the year ended December 31, 2016 of $850,000, compared to $125,000 for the year ended December 31, 2015 and $850,000 for the year ended December 31, 2014. The provision for loan losses increased in 2016 primarily due to increases in the loan portfolio, excluding loans held for sale, of $88.7 million, or 8.2% over the last year, in combination with an increase in net charge offs. Net charge-offs for 2016 equaled $1.1 million, or 0.10% of total average loans compared to $652,000, or 0.06% of total average loans, in 2015. The provision for loan losses is charged to income to bring our allowance for loan losses to a level deemed appropriate by management based on the factors discussed below under “Allowance for Loan Losses.”

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. See Note 5 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

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 collectibility 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 collectibility 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.

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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 collectibility 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. Although the economy is stabilizing in the communities we serve and unemployment rates have improved compared to recent years, management has concluded that our allowance for loan losses should be greater than historical loss experience and specifically identified losses might otherwise indicate. This is while we continue to wait for the market to fully recover and partially due to the increase in higher risk loans like consumer and commercial, as a percentage of total loans.

At December 31, 2016, our allowance for loan losses was $12.4 million, or 1.1% of the total loan portfolio, and approximately 231.0% of total non-performing loans. Our allowance for loan losses balance decreased 2.0% from December 31, 2015. Assessing the adequacy of the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans that are susceptible to significant change. In the opinion of management, the allowance, when taken as a whole, is adequate to absorb reasonable estimated loan losses inherent in our loan portfolio.

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The following table sets forth an analysis of our allowance for loan losses.

	December 31,
	2016			2015			2014			2013			2012
	(Dollars in thousands)
Balance at beginning of period	$	12,641		$	13,168		$	13,412		$	16,038		$	16,815
Charge-offs:
Commercial		274			104			289			2,713			4,493
Mortgage		420			643			572			886			1,901
Consumer		788			640			1,021			940			1,608
Total charge-offs		1,482			1,387			1,882			4,539			8,002
Recoveries:
Commercial		85			498			499			69			586
Mortgage		25			34			31			273			239
Consumer		263			203			258			271			375
Total recoveries		373			735			788			613			1,200
Net charge-offs		1,109			652			1,094			3,926			6,802
Provisions charged to operations		850			125			850			1,300			6,025
Balance at end of period	$	12,382		$	12,641		$	13,168		$	13,412		$	16,038
Ratio of net charge-offs during the period to average loans outstanding during the period		0.10	%		0.06	%		0.11	%		0.40	%		0.71	%
Allowance as a percentage of non-performing loans		230.99	%		176.28	%		177.04	%		156.15	%		67.72	%
Allowance as a percentage of total loans (end of period)		1.06	%		1.17	%		1.30	%		1.37	%		1.63	%

Investment Activities

MutualBank may invest in various types of liquid assets, including United States Treasury obligations, securities of various federal agencies, including callable agency securities, securities of state and political subdivisions, certain certificates of deposit of insured banks and savings institutions, certain bankers’ acceptances, repurchase agreements and federal funds. It also may invest in investment grade commercial paper and corporate debt securities and certain mutual funds.

The Chief Financial Officer is responsible for the management of our investment portfolio, subject to the direction and guidance of the Asset and Liability Management Committee and the Board of Directors. The Chief Financial Officer considers various factors when making decisions, including the marketability, maturity and tax consequences of the proposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases. 

The objectives of our investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low and to maximize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk. See “Item 7A - Quantitative and Qualitative Disclosures About Market Risk”.

Our investment securities currently consist of U.S. Agency securities, mortgage-backed securities, collateralized mortgage obligations, municipal securities and corporate obligations. Our mortgage-backed securities portfolio currently consists of securities issued under government-sponsored agency programs. See Note 4 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

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While mortgage-backed securities carry a reduced credit risk as compared to whole loans, these securities remain subject to the risk that a fluctuating interest rate environment, along with other factors like the geographic distribution of the underlying mortgage loans, may alter the prepayment rate of the mortgage loans and affect both the prepayment speed and value of the securities.

Although the Bank has not had a trading portfolio in recent history, we are permitted by the Board of Directors to have a trading portfolio of up to $5.0 million and to trade up to $2.0 million in these securities at any one time. At December 31, 2016, however, we did not have a trading portfolio. See Note 4 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

A majority of MutualBank’s investment portfolio is under the management of its wholly owned subsidiary, Mutual Federal Investment Company. Mutual Federal Investment Company, a Nevada corporation, holds, services, manages and invests that portion of the Bank’s investment portfolio as may be transferred from time to time by the Bank to Mutual Federal Investment Company. Mutual Federal Investment Company’s investment policy, for the most part, mirrors that of the Bank. Mutual Federal Investment Company has hired a third party investment advisor to manage its securities portfolio, subject to the oversight of its Board of Directors. At December 31, 2016, MutualBank had $249.9 million in consolidated investment securities. The portfolio is comprised of available for sale securities. At that date, Mutual Federal Investment Company managed $233.4 million of the total available for sale portfolio.

The following table sets forth the composition of our investment and mortgage-related securities portfolio and our other investments at the dates indicated. As of December 31, 2016, our investment securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued by the United States Government, its agencies or government sponsored entities.

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	December 31,
	2016				2015				2014
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Investment securities available for sale:
Mortgage-backed securities	$	92,871	$	92,517	$	106,524	$	107,838	$	110,452	$	113,290
Collateralized mortgage obligations		68,621		68,047		84,976		84,652		97,325		97,759
Federal agencies		-		-		-		-		-		-
Municipal obligations		77,474		77,682		54,427		57,188		27,250		29,256
Corporate obligations		12,822		11,667		12,805		11,460		21,763		20,501
Total securities available for sale		251,788		249,913		258,732		261,138		256,790		260,806
Investment in limited partnerships		327		N/A		427		N/A		1,582		N/A
Federal Home Loan Bank stock		10,925		N/A		10,482		N/A		11,964		N/A
Total investments	$	263,040	$	249,913	$	269,641	$	261,138	$	270,336	$	260,806

The following table indicates, as of December 31, 2016, the composition and contractual maturities of our investment securities, excluding Federal Home Loan Bank (“FHLB”) stock.

	Due In
	Less Than 1 year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total Investment Securities
	Amortized			Amortized			Amortized			Amortized			Amortized			Fair
	Cost			Cost			Cost			Cost			Cost			Value
	(Dollars in thousands)
Available for sale:
Mortgage-backed securities	$	-		$	2,415		$	11,302		$	79,154		$	92,871		$	92,517
Collateralized mortgage obligations		-			-			-			68,621			68,621			68,047
Municipal obligations		-			845			9,874			66,755			77,474			77,682
Corporate obligations		-			4,500			4,513			3,809			12,822			11,667
	$	-		$	7,760		$	25,689		$	218,339		$	251,788		$	249,913
Weighted average yield		-	%		2.72	%		3.24	%		2.69	%		2.75	%

MutualBank routinely conducts reviews to identify and evaluate each investment security to determine if any other-than-temporary impairment (“OTTI”) has occurred. During the years ended December 31, 2016, 2015 and 2014 we did not recognize any OTTI on our investments. No securities in the portfolio were non-performing as of December 31, 2016. The remaining two trust preferred securities were priced using a discounted cash flow analysis as of December 31, 2016.

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Pooled Trust Preferred Securities. The Company has invested in pooled trust preferred securities. At December 31, 2016, the current par 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, based on valuations by a third party. OTTI taken on trust preferred securities prior to 2016 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 the current 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 2016. All pooled trust preferred securities owned by the Bank are exempt from the Volcker Rule.

The following table provides additional information related to the Bank’s investment in trust preferred securities as of December 31, 2016.

Deal Name	Class	Original Par		Book Value		Fair Value		Unrealized Loss			Realized Losses 2016		Lowest Ratings	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	$	918	$	563	$	(355	)	$	-	CCC-		44		49		4.20	%		9.55	%		54.52	%
U.S. Capital Funding I	B3		3,000		2,891		2,025		(866	)		-	Caa1		29		33		7.95	%		6.19	%		12.69	%
		$	4,000	$	3,809	$	2,588	$	(1,221	)	$	-

⁽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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The Bank’s trust preferred securities valuation was prepared by an independent third party. Their approach for determining fair value involved several steps including: (1) a detailed credit and structural evaluation of each piece of collateral in the trust preferred securities; (2) collateral performance projections for each piece of collateral in the trust preferred security; (3) terms of the trust preferred structure, as laid out in the indenture; and (4) discounted cash flow modeling.

The Company 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 no active market 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.

The default and recovery probabilities for each piece of collateral were formed based on the evaluation of the collateral credit and a review of historical industry default data and current/near-term operating conditions. For collateral that has already defaulted, the Company assumed no recovery. For collateral that was in deferral, the Company assumed a recovery of 10% of par for banks, thrifts or other depository institutions, and 15% of par for insurance companies. Although the Company conservatively assumed that the majority of the deferring collateral continues to defer and eventually defaults, we also recognize there is a possibility that some deferring collateral may become current at some point in the future.

Sources of Funds

General. Our sources of funds are deposits, borrowings, payment of principal and interest on loans, interest earned on or maturation of other investment securities and funds provided from operations.

Deposits. We offer deposit accounts to consumers and businesses having a wide range of interest rates and terms. Our deposits consist of savings deposit accounts, NOW and demand accounts and certificates of deposit. We solicit deposits in our market areas as well as online through our internet banking product. We primarily rely on competitive pricing policies, marketing and customer service to attract and retain these deposits. Occasionally we will accept brokered deposits from a broker but only if no fee is paid. At December 31, 2016, our brokered certificates of deposit totaled $62.1 million, or 5.4% of total deposits, with an average interest rate of 1.00% and a 1.8 year weighted-average maturity.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, and competition. The variety of our deposit accounts has allowed us to be competitive in obtaining funds and to respond to changes in consumer demand. We have become more susceptible to short-term fluctuations in deposit flows, as customers have continued to deposit in short-term products while rates remain low. We try to manage the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors. Based on our experience, we believe that our deposits are relatively stable sources of funds. Our ability to attract and maintain these deposits and the rates paid on those deposits has been and will continue to be affected significantly by economic and market conditions.

The FRB requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts, primarily checking, NOW and Super NOW checking accounts. At December 31, 2016, we were in compliance with these reserve requirements.

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The following table sets forth the dollar amount of deposits in the various types of deposit programs we offered at the dates indicated.

	December 31,
	2016					2015					2014
	Amount		Percent of Total			Amount		Percent of Total			Amount		Percent of Total
	(Dollars in thousands)
Transactions and savings deposits:
Noninterest bearing accounts	$	178,046		15.44	%	$	179,542		16.45	%	$	154,178		14.28	%
Savings accounts		136,314		11.82			131,578		12.06			124,051		11.49
Interest-bearing NOW and demand accounts		292,977		25.40			267,089		24.47			253,042		23.44
Money market accounts		173,305		15.03			162,551		14.89			146,847		13.61
Total non-certificates		780,642		67.69			740,760		67.87			678,118		62.82
Certificates:
0.00 -1.99%		312,498		27.09			305,517		27.99			331,742		30.74
2.00 -3.99%		60,240		5.22			45,052		4.13			69,406		6.43
4.00 -5.99%		2		0.00			53		0.01			54		0.01
Total certificates		372,740		32.31			350,622		32.13			401,202		37.18
Total deposits	$	1,153,382		100.00	%	$	1,091,382		100.00	%	$	1,079,320		100.00	%

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The following table shows rate and maturity information for our certificates of deposit as of December 31, 2016.

	0.00 - 1.99%			2.00 - 3.99%			4.00 - 5.99%			Total			Percent of Total
	(Dollars in thousands)
Certificate accounts maturing in quarter ending:
March 31, 2017	$	66,387		$	149		$	-		$	66,536			17.84	%
June 30, 2017		49,130			2,816			2			51,948			13.94
September 30, 2017		43,614			3,611			-			47,225			12.67
December 31, 2017		22,856			1,565			-			24,421			6.55
March 31, 2018		4,761			589			-			5,350			1.44
June 30, 2018		15,338			189			-			15,527			4.17
September 30, 2018		17,122			165			-			17,287			4.64
December 31, 2018		10,522			3			-			10,525			2.82
March 31, 2019		8,544			1			-			8,545			2.29
June 30, 2019		13,628			-			-			13,628			3.66
September 30, 2019		3,680			114			-			3,794			1.02
December 31, 2019		5,972			5,137			-			11,109			2.98
Thereafter		50,944			45,901			-			96,845			25.98
Total	$	312,498		$	60,240		$	2		$	372,740			100.00	%
Percent of total	$	83.84	%		16.16	%		0.00	%		100.00	%

The following table indicates, as of December 31, 2016, the amount of our certificates of deposit and other deposits by time remaining until maturity.

	Maturity
	3 Months or Less		Over 3 to 6 Months		Over 6 to 12 Months		Over 12 Months		Total
	(Dollars in thousands)
Certificates of deposit  less than $100,000	$	20,547	$	26,347	$	41,717	$	102,602	$	191,213
Certificates of deposit of $100,000 or more		42,568		24,129		28,106		74,675		169,478
Public Funds (1)		3,421		1,472		1,823		5,333		12,049
Total Certificates of deposit	$	66,536	$	51,948	$	71,646	$	182,610	$	372,740

(1) Deposits from governmental and other public entities.

Borrowings. We also utilize borrowings as a source of funds, especially when they are less costly than deposits and can be invested at a positive interest rate spread, when we desire additional capacity to fund loan demand or when they meet our asset/liability management goals. Our borrowings historically have consisted of advances from the FHLB of Indianapolis. See Note 12 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

We may obtain advances from the FHLB of Indianapolis upon the pledging of certain collateral. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features. At December 31, 2016 we had $240.6 million in FHLB advances outstanding. Based on current collateral levels, we could borrow an additional $29.5 million from the FHLB at prevailing interest rates. In order to have access to FHLB advances, we are required to own stock in the FHLB of Indianapolis. At December 31, 2016, we had $10.9 million in that stock.

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We also are authorized to borrow from the Federal Reserve Bank of Chicago’s “discount window.” We have never borrowed from the Federal Reserve Bank and currently do not have any assets pledged to them for borrowing.

The Bank also has three fed fund lines totaling $40 million. There was no outstanding balance on any of these lines as of December 31, 2016.

The Company acquired $5.0 million of issuer trust preferred securities in the 2008 acquisition of another financial institution. The net balance of these securities as of December 31, 2016 was $4.2 million due to the purchase accounting adjustment made at the time of the acquisition. The securities bore a fixed rate of interest of 6.22% for the first five years, resetting quarterly thereafter at the prevailing three-month LIBOR rate plus 170 basis points. The Company has had the right to redeem the trust preferred securities, in whole or in part, without penalty, since September 15, 2010. These securities mature on September 15, 2035.

The following table sets forth, for the years indicated, the maximum month-end balance and average balance of FHLB advances and other borrowings.

	Year Ended December 31,
	2016		2015		2014
	(Dollars in thousands)
Maximum Balance:
FHLB advances	$	243,817	$	225,617	$	192,442
Other borrowings		10,312		10,181		11,830
Average Balance:
FHLB advances	$	230,329	$	198,854	$	164,398
Other borrowings		8,421		9,875		11,509

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The following table sets forth certain information as to our borrowings at the dates indicated.

	December 31,
	2016			2015			2014
	(Dollars in thousands)
FHLB advances	$	240,591		$	225,617		$	192,442
Other borrowings		4,189			9,458			10,174
Total borrowings	$	244,780		$	235,075		$	202,616
Weighted average interest rate of FHLB advances		1.53	%		1.52	%		1.36	%
Weighted average interest rate of other borrowings(1)		2.66	%		3.17	%		4.41	%

⁽¹⁾ Our other borrowings include subordinated debt as of December 31, 2016.

Trust and Financial Services

MutualWealth and MutualFinancial are the wealth management and brokerage divisions of the Bank that provide a variety of fee-based financial services, including trust, investment, insurance, broker advisory, retirement plan and private banking services, in our market areas. Trust services are provided to both individual and corporate customers, including personal trust and agency accounts, employee benefit plans and corporate bond trustee accounts. These activities provide a significant source of fee income to the Company and in 2016 constituted 26.0% of the Company’s non-interest income.

Subsidiary and Other Activities

The Company, as a bank holding company that has elected to be treated as a financial holding company, is allowed to invest in permissible subsidiaries as authorized by Federal law and the regulations of the FRB. At December 31, 2016, the Company had an active captive insurance company, MutualFirst Risk Management, Inc. and another subsidiary, Mutual Risk Advisors, an information security consulting firm.

As an Indiana commercial bank, MutualBank is allowed to invest in subsidiaries as authorized by Indiana law and the IDFI. Under FDIC regulations, those subsidiaries generally may only engage in activities as principal that are permissible for national bank subsidiaries, unless the Bank receives FDIC approval to engage in other activities permitted by Indiana law and the IDFI. Activities engaged in as agent, including insurance agency activities, are not subject to this FDIC limitation.

The Bank's insurance agency subsidiary, Mishawaka Financial Services, Inc., is engaged in the sale, as agent, of life insurance and credit-life and health insurance to the Bank's customers and the general public.

At December 31, 2016, MutualBank had an active investment subsidiary, Mutual Federal Investment Company, which is a Nevada corporation that holds and manages a portion of MutualBank’s investment portfolio. As of December 31, 2016, the market value of securities managed was $233.4 million. Mutual Federal Investment Company has one active subsidiary, Mutual Federal REIT, Inc., which is a Maryland corporation holding approximately $49.9 million in consumer closed end first mortgage loans.

The Bank had one other active subsidiary as of December 31, 2016. Summit Service Corporation which controls the 100% wholly owned active subsidiary, Summit Mortgage, Inc., which is an Indiana corporation that originates and sells consumer closed end first mortgage loans. As of December 31, 2016, Summit Mortgage had $3.4 million in loans held for sale.

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Employees

At December 31, 2016, we had a total of 395 full-time and 47 part-time employees. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good.

How We Are Regulated

MutualBank is an Indiana commercial bank subject to regulation by the IDFI and the FDIC, and the Company is a bank holding company subject to FRB regulation. The Dodd-Frank Act created the Consumer Financial Protection Bureau (“CFPB”), which has authority to promulgate regulations intended to protect consumers with respect to financial products and services, including those provided by the Bank, and to restrict unfair, deceptive or abusive conduct by providers of consumer financial products and services. The FDIC and IDFI regulates the Bank under these regulations. As a public company, the Company is subject to the regulation and reporting requirements of the SEC.

Set forth below is a brief description of certain laws and regulations that apply to us. This description, as well as other descriptions of laws and regulations contained in this Form 10-K, is not complete and is qualified in its entirety by reference to the applicable laws and regulations.

Legislation is introduced from time to time in the United States Congress and the Indiana General Assembly that may affect our operations. In addition, the regulations governing the Company and the Bank may be amended from time to time by the IDFI, FDIC, CFPB, FRB or SEC, as appropriate. Any legislative or regulatory changes in the future, including those resulting from the Dodd-Frank Act, could adversely affect our operations and financial condition.

MutualFirst Financial. MutualFirst Financial is a bank holding company that has elected to be a treated as a financial holding company. MutualFirst is required to register and file reports with the FRB and is subject to regulation and examination by the FRB, including regulations requiring that the Company serve as a source of financial and managerial strength for the Bank, particularly if the Bank is in financial distress. In addition, the FRB has enforcement authority over the Company and any of its non-bank subsidiaries. The Company’s direct activities and those of non-bank subsidiaries are subject to FRB regulation and must be activities permissible for a bank holding company or be activities for a financial holding company; generally securities and insurance. The Company must obtain FRB approval to acquire substantially all the assets of another bank or bank holding company or to merge with another bank holding company. In addition, the Company must obtain FRB authorization to control more than 5% of the shares of any other bank or bank holding company and may not own more than 5% of any other entity engaged in activities not permitted for the Company. The IDFI also has oversight authority over the Company, including acquisitions of other Indiana banks or bank holding companies. The FRB imposes consolidated capital requirements on the Company. See “- Regulatory Capital Requirements”.

MutualBank. As an Indiana commercial bank, MutualBank is subject to regulation, examination and supervision by the IDFI. Indiana and Federal laws regulate many aspects of the Bank’s operations including branching, dividends, interest and fees collected, anti-money laundering activities, confidentiality of customer information, credit card operations, corporate governance, mergers and purchase and assumption transactions, insurance activities, securities investments, real estate investments, trust operations, lending activities, subsidiary operations and required capital levels. Under Indiana law, Indiana banks may have parity authority with national banks.

To fund its operations, the IDFI has established a schedule for the assessment of supervisory fees for all Indiana financial institutions. These supervisory fees are computed based on the Bank’s total assets and trust assets and increase if the Bank experiences financial distress. The IDFI also charges fees for certain applications and other filings.

The Bank’s primary federal regulator is the FDIC. See “- FDIC Regulation and Insurance of Accounts.”

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FDIC Regulation and Insurance of Accounts. As a state-chartered, non-member bank, MutualBank is subject to regulation, examination and supervision by the FDIC. The FDIC does not assess fees for its examination and supervision of the Bank. The FDIC oversees the Bank’s operations under federal law, regulations and policies, including consumer compliance laws, and ensures that the Bank operates in a safe and sound manner. It regulates the Bank’s branching, transactions with affiliates (including the Company) and loans to insiders. Under FDIC regulations, the Bank generally is prohibited from acquiring or owning any equity investments impermissible for national banks and from engaging as principal in activities that are not permitted for national banks without FDIC approval. During examinations, the FDIC may require the Bank to establish additional reserves for loan losses, which would decrease the Company’s net income. The FDIC has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution that fails to comply with these standards must submit a compliance plan.

The Bank’s deposits are insured up to the applicable limits by the FDIC, and such insurance is backed by the full faith and credit of the United States Government. The basic deposit insurance level is $250,000 per each separately insured depositor, as defined in FDIC regulations. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. Our deposit insurance premiums for the year ended December 31, 2016 were $788,000. The FDIC’s premium rates may increase due to strains on the FDIC deposit insurance fund resulting from the cost of bank failures. Also, if the Bank’s regulatory capital or supervisory ratings deteriorate, these deposit insurance premiums may increase.

In accordance with the Dodd-Frank Act, the FDIC has issued regulations setting insurance premium assessments based on an institution's total assets minus its Tier 1 capital instead of its deposits. The Bank’s FDIC premiums are based on its assignment under one of four risk categories based on the Bank’s capital, supervisory ratings and other factors. Federal law requires that the reserve ratio of the FDIC deposit insurance fund be at least 1.35% by September 2020, and the FDIC has established a plan to meet that requirement.

It also may prohibit the Bank from engaging in any activity that it determines by regulation or order to pose a serious risk to the deposit insurance fund and may terminate our deposit insurance if it determines that we have engaged in unsafe or unsound practices or are in an unsafe or unsound condition.

Regulatory Capital Requirements. Both MutualFirst and MutualBank are required to maintain a minimum level of regulatory capital. The FRB and the FDIC have established capital standards for the Company and the Bank for purposes of establishing the threshold for taking prompt corrective action against FDIC insured institutions. The FDIC also may impose capital requirements in excess of these standards on individual institutions on a case-by-case basis. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation - Capital Resources” for information on the Company’s and the Bank’s compliance with these capital requirements.

New capital requirements set forth by the FRB and FDIC became effective at the beginning of 2015 (with some changes transitioned into full effectiveness over two to four years). The new capital regulations created a new required ratio for common equity Tier 1 (“CET1”) capital, increased the minimum leverage and Tier 1 capital ratios, changed the risk-weightings of certain assets for purposes of the risk-based capital ratios, created an additional capital conservation buffer over the required capital ratios, and changed what qualifies as capital for purposes of meeting the capital requirements.

The minimum capital ratios are: (1) a CET1 capital ratio of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (3) a total capital ratio of 8.0% of risk-weighted assets; and (4) a leverage ratio (the ratio of Tier 1 capital to average total adjusted assets) of 4.0%. CET1 generally consists of common stock; retained earnings; accumulated other comprehensive income (“AOCI”) except in the case of banking organizations that have elected to exclude AOCI from regulatory capital, as discussed below; and certain minority interests; all subject to applicable regulatory adjustments and deductions.

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There are a number of changes in what constitutes regulatory capital, subject to transition periods. These changes include the phasing-out of certain instruments as qualifying capital. Mortgage servicing and deferred tax assets over designated percentages of CET1 are deducted from capital. In addition, Tier 1 capital includes AOCI, which includes all unrealized gains and losses on available for sale debt and equity securities. Because of our asset size, we had the one-time option of deciding in the first quarter of 2015 whether to permanently opt-out of the inclusion of unrealized gains and losses on available for sale debt and equity securities in our capital calculations. We made the decision to opt out.

The capital requirements also include changes in the risk-weighting of assets to better reflect credit risk and other risk exposure. These changes include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and for non-residential mortgage loans that are 90 days past due or otherwise in nonaccrual status; a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable (set at 0%); and a 250% risk weight (up from 100%) for mortgage servicing and deferred tax assets that are not deducted from capital.

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).

Under the FDIC’s prompt corrective action standards, in order to be considered well-capitalized, the Bank must have a ratio of CET1 capital to risk-weighted assets of 6.5%, a ratio of Tier 1 capital to risk-weighted assets of 8%, a ratio of total capital to risk-weighted assets of 10%, and a leverage ratio of 5%; and in order to be considered adequately capitalized, it must have the minimum capital ratios described above. To be considered well-capitalized a bank holding company must have, on a consolidated basis, at least a Tier 1 risk-based capital ratio of 8% and a total risk-based capital ratio of 10% and not be subject to a higher enforceable individualized capital requirement.

Limitations on Dividends and Other Capital Distributions. The Company’s major source of funds consists of dividends from the Bank. The ability of the Bank to pay dividends depends on its earnings and capital levels and may be limited by FDIC or IDFI regulations, directives or orders, or by the capital conservation buffer requirements. In addition, under Indiana law, the Bank may pay dividends from undivided profits; however, in some circumstances it may be required to obtain IDFI approval of a dividend if the total dividends declared during the current year, including the proposed dividend, exceeds net income for the current year and retained net income for the prior two years, which excludes dividends paid during those years. The approval from IDFI is not required if the Bank meets exemption guidelines that mandate minimums for examination ratings and the Tier 1 leverage capital ratio, and the Bank is not subject to corrective action or supervisory order agreements. Since the Bank became regulated by the IDFI, it has been exempt from the pre-approval requirements. It is the Bank’s policy to maintain a strong capital position, so, in times of financial or economic distress, the Bank will be less likely to pay dividends to the Company.

The ability of the Company to pay dividends to its stockholders is dependent on the receipt of dividends from the Bank. Under Maryland law, the Company cannot pay cash dividends if it would render the Company unable to pay its debts or would be insolvent (unless they are paid from recent earnings).

The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB’s view that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition. The FRB also indicated that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, a bank holding company may be prohibited from paying any dividends if the holding company’s bank subsidiary is not adequately capitalized. The payment of dividends by a bank holding company can also be restricted under the capital conversation buffer requirements in the capital regulations.

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A bank holding company is required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, FRB order, or any condition imposed by, or written agreement with, the FRB. This notification requirement does not apply to any company that meets the well-capitalized standard for bank holding companies, is well-managed, and is not subject to any unresolved supervisory issues.

Federal Securities Laws. The common stock of the Company is registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Therefore, the Company is subject to the reporting, information disclosure, proxy solicitation, insider trading limits and other requirements imposed on public companies by the SEC under the Exchange Act. This includes limits on sales of stock by certain insiders and the filing of insider ownership reports with the SEC. The SEC and Nasdaq have adopted regulations under the Sarbanes-Oxley Act of 2002 that apply to the Company as a Nasdaq-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings.

Federal Taxation

General. We are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to us. MutualFirst’s federal income tax returns have been closed without audit by the IRS through its year ended December 31, 2012. MutualFirst and MutualBank will file a consolidated federal income tax return for fiscal year 2016.

Taxable Distributions and Recapture. Prior to 1998, bad debt reserves created prior to the year ended December 31, 1997 were subject to recapture into taxable income if MutualBank failed to meet certain thrift asset and definitional tests. Federal legislation eliminated these thrift recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should MutualBank make certain non-dividend distributions or cease to maintain a bank charter.

Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, called alternative minimum taxable income. The alternative minimum tax is payable to the extent such alternative minimum taxable income is in excess of an exemption amount. Net operating losses can offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. MutualBank is subject to the alternative minimum tax, and has $1.4 million available as credits for carryover.

Corporate Dividends-Received Deduction. MutualFirst may eliminate from its income dividends received from MutualBank as a wholly owned subsidiary of MutualFirst if it elects to file a consolidated return with MutualBank. The corporate dividends-received deduction is 100% or 80%, in the case of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payer of the dividend. Corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct 70% of dividends received or accrued on their behalf.

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State Taxation

MutualBank is subject to Indiana’s financial institutions tax, which is imposed at a flat rate as of December 31, 2016, of 7.0% on “adjusted gross income” apportioned to Indiana. “Adjusted gross income,” for purposes of the financial institutions tax, begins with taxable income as defined by Section 63 of the Internal Revenue Code and incorporates federal tax law to the extent that it affects the computation of taxable income. Federal taxable income is then adjusted by several Indiana modifications including only considering members of the combined group which have Indiana nexus. Indiana legislature started reducing the financial institutions tax from 8.5% to 6.5% in 0.5% increments over a four year period that commenced in 2014. The full change will be effective at the end of 2017.

Other applicable state taxes include generally applicable sales and use taxes plus real and personal property taxes. The Company is subject to a Michigan business tax on apportioned capital employed in the state of Michigan. The Company also files the Pennsylvania Bank & Trust Company shares and loans tax report.  Ultimately, this tax is based on apportioned adjusted capital in the state of Pennsylvania.

Internet Website

We maintain a website with the address of www.bankwithmutual.com. The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. This Annual Report on Form 10-K and our other reports, proxy statements and other information, including earnings press releases, filed with the SEC are available on that website through a link to the SEC’s website at “About Us - Investor Relations - SEC Filings.” For more information regarding access to these filings on our website, please contact our Corporate Secretary, MutualFirst Financial, Inc., 110 E. Charles Street, Muncie, Indiana, 47305-2400; telephone number (765) 747-2800.

Item 1A. Risk Factors

The following are certain risk factors that could impact our business, financial results and results of operations. Investing in our common stock involves risks, including those described below. These risk factors should be considered by prospective and current investors in our common stock when evaluating the disclosures in this Annual Report on Form 10-K (particularly the forward-looking statements). These risk factors could cause actual results and conditions to differ materially from those projected in forward-looking statements. If any of the events in the following risks actually occur, or if additional risks and uncertainties not presently known to us or that we believe are immaterial do materialize, then our business, financial condition or results of operations could be materially adversely impacted. In addition, the trading price of our common stock could decline due to any of the events described in these risks.

The previous economic recession was severe in our primary market area of northern and east central Indiana, which is not a high growth market. A return of recessionary conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which could have an adverse effect on our results of operations.

Our business activities and earnings are affected by general business conditions in the United States and in our local market area. These conditions are impacted by changes to short-term and long-term interest rates, inflation, unemployment levels, monetary supply, consumer confidence and spending, fluctuations in both debt and equity capital markets, and the strength of the economy in the United States generally and in our primary market area in particular. The economy continues to recover from the recent most severe recession, which caused high unemployment levels, declining real estate values and eroded consumer confidence. The recession also reduced demand for commercial business and real estate loans in our local market. Declines in real estate values and other effects of the recession impacted household and corporate incomes, impairing the ability of our borrowers to repay their loans in accordance with their terms and increasing our non-performing loans, loan charge-offs, provisions for loan losses and foreclosures.

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Substantially all of our loans are located in northern and east central Indiana, which was impacted by the recession more severely than the national average. Our primary market area, which consists of Allen, Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash counties in Indiana and Berrien county in Michigan, has experienced limited population growth of 0.64% from 2000 through 2010. This data from the census bureau reflects population increases in our northern region market of 2.02% compared to the reduction in population of our central region of (3.04%). Unemployment levels in our market areas in Indiana historically have been above the state and federal averages but have been below the state and federal level over the last two years. According to data published by the Bureau of Labor Statistics of the United States Department of Labor, the national unemployment rate for the United States at December 31, 2016 was 4.5% (not seasonally adjusted) compared to an average rate of 3.9% (not seasonally adjusted) for our market areas in Indiana. See “Item 1 - Business - Market Area.”

A return of recessionary conditions in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and an increase in unemployment levels may result in higher than expected loan delinquencies and a decline in demand for our products and services. These negative events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition. Stock prices for financial institution holding companies, including MutualFirst, would be expected to decline substantially, and it would be significantly more difficult to raise capital or borrow in the debt markets.

A substantial portion of our assets consist of various types of loans that carry varying levels of credit and interest rate risk and that are sensitive to changes in the local and national economies.

Loans Secured by Residential Property. At December 31, 2016, $554.4 million, or 47.1% of our total loan portfolio, was secured by one- to four-family residential property, including loans held for sale and home equity loans and home equity lines of credit. This type of lending is generally sensitive to regional and local economic conditions that impact the ability of borrowers to meet their loan payment obligations. Although we continue to see recovery in the market areas we serve, the decline in residential real estate values as a result of the last downturn in the Indiana housing markets has reduced the value of the real estate collateral securing these types of loans and increased the risk that we could incur losses if borrowers default on their loans. In addition, borrowers seeking to sell their homes may find that they cannot sell their properties for an amount equal to or greater than the unpaid principal loan balance. These potential negative events may cause us to incur losses, adversely affect our capital and liquidity and damage our financial condition and business operations.

Commercial Real Estate, Construction and Development and Commercial Business Loans. At December 31, 2016, $456.1 million, or 38.8% of our total loan portfolio, consisted of commercial real estate, construction and development and commercial business loans to small and mid-sized businesses, predominantly in our primary market area, which are the types of businesses that have a heightened vulnerability to local economic conditions. At December 31, 2016, our loan portfolio included $22.5 million of commercial construction and development loans, $302.6 million of commercial real estate loans and $131.1 million of commercial business loans compared to $15.7 million, $236.9 million and $123.0 million for construction and development, commercial real estate and business loans, respectively, at December 31, 2015. Although we have seen gowth in the credit risk of the portfolio in 2016 and a reduction in non-performing loans, a decline in property values and other market impacts could lead to an increase in non-performing loans. See “Item 1 - Business of MutualBank - Asset Quality - Non-Performing Assets.”

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The credit risk related to these types of loans is considered to be greater than the risk related to one- to four-family residential loans because the repayment of commercial real estate loans and commercial business loans typically is dependent on the successful operation and income stream of the borrowers’ business and the real estate securing the loans as collateral, which can be significantly affected by economic conditions. Any delinquent payments or the failure to repay these loans would hurt our earnings. Additionally, commercial loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. Several of our commercial borrowers have more than one commercial real estate or business loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to any one- to four-family residential mortgage loan. Finally, if we foreclose on a commercial real estate loan, our holding period for the collateral, if any, is typically longer than a one- to four-family residential property because there are fewer potential purchasers of the collateral. If loans that are collateralized by real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could require us to increase our provision for loan losses and adversely affect our operating results and financial condition.

Other Consumer Loans. At December 31, 2016, $166.4 million, or 14.2% of our total loan portfolio consisted of consumer loans, of which $18.9 million consisted of automobile loans, $141.6 million consisted of boat/RV loans and $5.9 million consisted of other consumer loans, including unsecured lines of credit. Generally, we consider these types of loans to involve a higher degree of risk compared to mortgage loans on one- to four-family, owner-occupied residential properties, particularly in the case of loans that are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. Although our indirect loans, which totaled $136.0 million at December 31, 2016, were underwritten by a third party using our guidelines, they were primarily originated to customers outside of our normal lending area which presents greater risks than other types of lending activities. As a result of this portfolio of consumer loans, it may become necessary to increase the level of our provision for loan losses, which could hurt our profits.

Adjustable Rate Loans. At December 31, 2016, $497.2 million, or 42.2% of our total loan portfolio consisted of adjustable rate loans. Borrowers with adjustable rate loans are exposed to increased monthly payments when the related interest rate adjusts upward under the terms of the loan to the rate computed in accordance with the applicable index and margin. Any rise in prevailing market interest rates may result in increased payments for borrowers who have adjustable-rate loans, increasing the possibility of default. Borrowers seeking to avoid these increased monthly payments by refinancing their loans may no longer be able to find available replacement loans at comparably lower interest rates. In addition, declining real estate prices may prevent refinancing or a sale of the property, because borrowers have insufficient equity in the real estate. These events, alone or in combination, may contribute to higher delinquency rates and negatively impact our earnings.

If our allowance for loan losses is not sufficient to cover actual loan losses or our non-performing assets increase, our earnings will suffer. Increases in our provision for loan losses adversely impact our earnings and operations.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience and evaluate current economic conditions. Management recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover actual losses, resulting in additions to our allowance. Additions to our allowance decrease our net income. Our regulators periodically review our allowance for loan losses and may require us to recognize additions to the allowance based on their judgments about information available to them at the time of their review. These increases in our allowance for loan losses or loan charge-offs may have a material adverse effect on our financial condition and results of operations. Our allowance for loan losses was 1.06% of gross loans and 230.99% of non-performing loans at December 31, 2016, compared to 1.17% of gross loans and 176.28% of non-performing loans at December 31, 2015 and 1.30% of gross loans and 177.04% of non-performing loans at December 31, 2014.

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At December 31, 2016, our non-performing assets (which consist of non-accrual loans, loans 90 days delinquent and still accruing, non-accrual troubled debt restructurings, foreclosed real estate and other repossessed assets) totaled $6.6 million, which was a decrease of $3.0 million, or a 31.7% reduction in non-performing assets from December 31, 2015. This decrease reflects improved economic conditions within our market areas. Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans or real estate owned. We must reserve for estimated credit losses, which are established through a current period charge to the provision for loan losses, and from time to time, if appropriate, we must write down the value of properties in our real estate owned (“REO”) portfolio to reflect changing market values. Additionally, there are legal fees associated with the resolution of problem assets as well as carrying costs including taxes, insurance and maintenance related to our REO. Further, the resolution of non-performing assets requires the active involvement of management, potentially distracting them from the overall supervision of our operations and other income-producing activities.

During 2016, we recorded a provision for loan losses of $850,000 compared to $125,000 in 2015 and $850,000 foin 2014. We also recorded net loan charge-offs of $1.1 million in 2016, compared to $652,000 in 2015 and $1.1 million in 2014. During 2016, we experienced an increase in charge-offs in combination that was largely impacted by an increase in our loan portfolio of $88.7 million. This combination increased our need to add to our allowance for loan loss to support the existing loan portfolio as well as new loan growth. We did not experience declining trends in the housing, real estate and local business markets; however if that would return, we would expect increased levels of delinquencies and credit losses to return, which would adversely impact our financial condition and results of operations.

Changes in interest rates could adversely affect our results of operations and financial condition.

Our results of operations and financial condition are affected significantly by changes in interest rates. Our results of operations depend substantially on our net interest income, which is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest expense we pay on our interest-bearing liabilities, such as deposits and borrowings. Because interest-bearing liabilities generally reprice or mature more quickly than interest-earning assets, an increase in interest rates generally would tend to result in a decrease in net interest income.

Changes in interest rates also may affect the average life of loans and mortgage-related securities. Decreases in interest rates or continuing low interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we have been and continue to be subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments at rates that are comparable to the rates on existing loans and securities. Additionally, increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay adjustable-rate loans. Also, increases in interest rates may extend the life of fixed-rate assets, which could limit the funds we have available to reinvest in higher-yielding alternatives, and may result in customers withdrawing certificates of deposit early so long as the early withdrawal penalty is less than the interest they could receive as a result of the higher market interest rates.

Changes in interest rates also affect the current fair value of our interest-earning securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2016, the fair value of our portfolio of available for sale securities totaled $249.9 million. Gross unrealized gains on these securities totaled $2.8 million, while gross unrealized losses on these securities totaled $4.7 million, resulting in a net unrealized loss of $1.9 million at December 31, 2016.

At December 31, 2016, our interest rate risk analysis indicated that our net portfolio value would decrease by 8.7% if there was an instantaneous parallel 200 basis point increase in market interest rates. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Asset/Liability Management.”

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Our strategies to modify our interest rate risk profile may be difficult to implement.

Our asset/liability management strategies are designed to minimize our interest rate risk sensitivity. One such strategy is to increase the amount of adjustable rate and/or short-term assets. The Bank offers adjustable rate loan products as a means to achieve this strategy. The recent availability of lower rates on fixed-rate loans has generally created a decrease in borrower demand for adjustable rate assets. Additionally, these adjustable-rate assets may prepay. Despite this, at December 31, 2016, 42.2% of our loan portfolio consisted of adjustable-rate loans, compared to 37.6% at December 31, 2015.

We also are managing our liabilities to moderate our interest rate risk sensitivity. Customer demand is primarily for short-term certificates of deposit and transaction accounts. Using short-term liabilities to fund long-term, fixed-rate assets will increase the interest rate sensitivity of any financial institution. When needed, we are utilizing FHLB advances agreements to mitigate the impact of customer demand by lengthening the maturities of these advances or entering into longer term repurchase agreements, depending on liquidity or investment opportunities.

FHLB advances are entered into as liquidity is needed or to fund assets that provide for a spread considered sufficient by management. If we are unable to originate adjustable rate assets at favorable rates or fund loan originations or securities purchases with long-term advances or structured borrowings, we may have difficulty executing this asset/liability management strategy and/or it may result in a reduction in profitability.

OTTI charges in our investment securities portfolio could result in losses and adversely affect our continuing operations. Our securities portfolio may be negatively impacted by fluctuations in market value and interest rates, which may have an adverse effect on our financial condition.

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings, which may materially adversely affect our stockholders’ equity, regulatory capital and continuing operations. Fluctuations in market value may be caused by decreases in interest rates, lower market prices for securities and limited investor demand, as well as the default rates of specific financial institutions whose securities provide the underlying collateral for these securities and changes in credit risk based on the condition of the issuer. The valuation of our investment securities also is influenced by the implementation of Securities and Exchange Commission and Financial Accounting Standards Board guidance on fair value accounting, which requires us to report our available for sale securities at their estimated fair value. We increase or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available for sale securities, net of taxes. At December 31, 2016, the change in unrealized losses on securities available for sale from the level at December 31, 2015 was an increase of $4.3 million. The current market environment significantly limits our ability to mitigate our exposure to valuation changes in these securities by selling them.

Our securities portfolio is evaluated for OTTI on at least a quarterly basis. If this evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to earnings may occur. We have not recorded any OTTI since 2011. As of December 31, 2016, we have no securities that are deemed impaired.

If our investments in real estate are not properly valued or sufficiently reserved to cover actual losses, or if we are required to increase our valuation reserves, our earnings could be reduced.

We obtain updated valuations in the form of appraisals and broker price opinions when a loan has been foreclosed and the property taken in as REO, and at certain other times during the assets holding period. Our net book value (“NBV”) in the loan at the time of foreclosure and thereafter is compared to the updated market value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s NBV over its fair value. If our valuation process is incorrect, the fair value of our investments in real estate may not be sufficient to recover our NBV in such assets, resulting in the need for additional charge-offs. Additional material charge-offs to our investments in real estate could have a material adverse effect on our financial condition and results of operations. Our regulators periodically review our REO and may require us to recognize further charge-offs. Any increase in our charge-offs, as required by our regulator, may have a material adverse effect on our financial condition and results of operations.

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We face risks related to covenants in our loan sales to investors and secondary mortgage market conditions.

Our agreements with investors to sell our loans generally contain covenants that require us to repurchase loans under certain circumstances, including some delinquencies, or to return premiums paid by those investors if the loans are paid off early. If we are required to repurchase sold loans under these covenants, they may be deemed troubled loans, with the potential for charge-offs and/or loss provision changes, which could impact our earnings and asset quality ratios adversely. The Bank was not required to repurchase any loans from investors during 2016 or 2015.

Our ability to sell loans on the secondary mortgage market is impacted by interest rate changes and investor demand or expected return. If this market becomes less liquid, we may not be able to rely as much on loan sales to reduce our interest rate and credit risk.

We use estimates in determining the fair value of certain assets, such as mortgage servicing rights (“MSRs”). If our estimates prove to be incorrect, we may be required to write down the value of these assets which could adversely affect our earnings.

We sell a portion of our one- to four-family loans in the secondary market. We generally retain the right to service these loans through the Bank. At December 31, 2016, the value of our MSRs was $1.4 million. We use a financial model that uses, wherever possible, quoted market prices to value our MSRs. This model is complex and also uses assumptions related to interest and discount rates, prepayment speeds, delinquency and foreclosure rates and ancillary fee income. Valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of the model. The primary risk associated with MSRs is that they will lose a substantial portion of their value as a result of higher than anticipated prepayments occasioned by declining interest rates. Conversely, these assets generally increase in value in a rising interest rate environment to the extent that prepayments are slower than anticipated. If prepayment speeds increase more than estimated or delinquency and default levels are higher than anticipated we may be required to write down the value of our MSRs which could have a material adverse effect on our net income and capital levels. The Company obtains independent valuations at least semi-annually to determine if impairment in the asset exists.

Declining economic conditions may adversely impact the fees generated by our asset management and trust business.

To the extent our asset management and trust clients and their assets become adversely impacted by weak economic and stock market conditions, they may choose to withdraw the assets managed by us and/or the value of their assets may decline. Our asset management revenues are based on the value of the assets we manage. If our clients withdraw assets or the value of their assets decline, our revenues from these activities may be adversely affected. These fees totaled $3.9 million and $3.5 million in 2016 and 2015, respectively.

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We face significant operational and reputational risks. As a community bank, maintaining our reputation in our market area is critical to the success of our business, and the failure to do so may materially adversely affect our performance. Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes impacting the banking industry.

We are a community bank, and our reputation is one of the most valuable components of our business.  A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our current market and contiguous areas.  As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates.  We operate in many different financial service businesses and rely on the ability of our employees and systems to process a significant number of transactions. Operational risk is the risk of loss from operations, including fraud by employees or outside persons, employees’ execution of incorrect or unauthorized transactions, data processing and technology errors or hacking and breaches of internal control systems. If our reputation is negatively affected, by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or otherwise, our business and, therefore, our operating results may be materially adversely affected. Our loans to businesses and individuals and our deposit relationships and related transactions are subject to exposure to the risk of loss due to fraud and other financial crimes. Nationally, reported incidents of fraud and other financial crimes have increased. We have experienced an increase in losses due to apparent fraud and other financial crimes. Our policies and procedures designed to prevent such losses may not prevent all such losses. The Company continues to evaluate and implement new technologies; including, but not limited to, systems such as anti-skimming devices, new card technology, and monitoring systems that help to limit these types of instances.

Strong competition within our market area may limit our growth and profitability.

Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies and brokerage and investment banking firms operating locally and elsewhere. Many of these competitors have national name recognition, greater resources and lending limits than we do and may offer certain services or prices for services that we do not or cannot provide. Our profitability depends upon our continued ability to successfully compete in our market.

The financial services industry could become even more competitive as a result of new legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a bank holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.

A tightening of credit markets and liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. A tightening of the credit markets and the inability to obtain adequate funding to replace deposits and fund continued loan growth may affect asset growth, our earnings capability and capital levels negatively. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, including brokered deposits, as well as cash flows from loan payments and our securities portfolio. Borrowings, especially from the FHLB and repurchase agreements, also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated. Our ability to borrow also could be impaired by factors that are not specific to us, such as a disruption in the financial markets, negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations or continued deterioration in credit markets.

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Our core deposit premium could be deemed partially or fully impaired in the future, which would reduce our earnings and the values of that intangible asset.

At December 31, 2016, we had a core deposit premium of $200,000, due mainly to our 2008 acquisition of another financial institution. Under GAAP, we are required to periodically assess the value of this intangible asset based on a number of factors to determine if there is partial or full impairment. The factors taken into consideration include the market price of our stock, the net present value of our assets and liabilities and valuation information for similar financial institutions. This evaluation involves a substantial amount of judgment. If actual conditions underlying the factors differ from our assessment, the core deposit intangible could be subjected to faster amortization or partial or complete impairment, which would reduce the value of this asset and reduce our earnings, perhaps materially.

We currently hold a significant amount of bank-owned life insurance.

At December 31, 2016, we held $90.7 million of bank-owned life insurance or BOLI on key employees and executives, with a cash surrender value of $51.6 million. These policies are maintained to informally fund various benefit plans. The eventual repayment of the cash surrender value is subject to the ability of the various insurance companies to pay death benefits or to return the cash surrender value to us if needed for liquidity purposes. We continually monitor the financial strength of the various companies with whom we carry these policies. However, any one of these companies could experience a decline in financial strength, which could impair its ability to pay benefits or return our cash surrender value. If we need to liquidate these policies for liquidity purposes, we would be subject to taxation on the increase in cash surrender value and penalties for early termination, both of which would adversely impact earnings.

We may not be able to fully realize our deferred tax asset.

At December 31, 2016, we had a $12.0 million deferred income tax asset based on differences between the financial statement amounts and tax bases of assets and liabilities and reflecting mainly an allowance for loan loss timing difference and business tax and AMT carryover. The value of our deferred income tax benefit is reviewed regularly under various forecasts and assumptions, including anticipated levels of taxable net income, to determine the likelihood of realizing the benefit. If actual results or subsequent forecasts differ from our current judgments, to the extent that it becomes more likely than not that this benefit will not be fully realized, we would have to write down this asset, which would negatively impact results of operations and reduce our asset size.

A decrease to the corporate federal income tax rate may impair the Company’s deferred tax assets (“DTAs”). 

At December 31, 2016, the Company’s DTAs were approximately $12.0 million. While a decline in the corporate tax rate may lower the Company’s tax provision expense, it may also significantly impair the value of the Company’s DTAs in the year the rate decrease is enacted.  Such impairment could have a material adverse effect on the Company’s financial condition and results of operations.

Transactions between the Company and its insurance subsidiary MutualFirst Risk Management, Inc. (the “Captive”), may be subject to certain IRS responsibilities and penalties.

The Captive is a Nevada-based, wholly-owned insurance subsidiary of the Company that provides property and casualty insurance coverage to the Company and the Bank as well as to 14 other third-party insurance captives for which insurance may not be available or economically feasible.  The Treasury Department of the United States and the IRS by way of Notice 2016-66 have stated that transactions believed similar in nature to transactions between the Company and the Captive may have the potential for tax avoidance or evasion and may be deemed by the IRS as an abusive tax structure subject to significant penalties, interest and possible criminal prosecution.

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If our investment in the FHLB of Indianapolis becomes impaired, our earnings and stockholders’ equity could decrease.

At December 31, 2016, we owned $10.9 million in FHLB of Indianapolis stock. We are required to own this stock to be a member of and to obtain advances from our FHLB. This stock is not marketable and can only be redeemed by our FHLB. The most recent stock buyback initiated by FHLB was in 2015. Our FHLB’s financial condition is linked, in part, to the eleven other members of the FHLB System and to accounting rules and asset quality risks that could materially lower their capital, which would cause our FHLB stock to be deemed impaired, resulting in a decrease in our earnings and assets.

Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and our income.

The Bank and the Company are subject to extensive regulation, supervision and examination by federal and state regulators, which have extensive discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on a bank’s operations, reclassify assets, determine the adequacy of a bank’s allowance for loan losses and determine the level of deposit insurance premiums assessed. Because our business is highly regulated, the applicable laws and regulations are subject to frequent change. Any change in these laws, regulations and oversight, whether in the form of regulatory policy, new regulations or legislation or additional deposit insurance premiums, could have a material impact on our operations. See “Item 1 - How We Are Regulated.”

In response to the last financial crisis, Congress took actions that are intended to strengthen confidence and encourage liquidity in financial institutions, and the FDIC has taken actions to increase insurance coverage on deposit accounts. The Dodd-Frank Act created the CFPB.

The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets, their service providers and certain non-depository entities such as debt collectors and consumer reporting agencies. In the case of banks, such as the Bank, with total assets of less than $10 billion, this examination and enforcement authority is held by the institution’s primary federal banking regulator (the FDIC, in the case of the Bank).

The CFPB has finalized a number of significant rules that could have a significant impact on our business and the financial services industry more generally. In particular, the CFPB has adopted ruled impacting nearly every aspect of the lifecycle of a residential mortgage loan. The CFPB has also issued guidance which could significantly affect the automotive financing industry by subjecting indirect auto lenders, such as the Bank, to regulation as creditors under the Equal Credit Opportunity Act, which would make indirect auto lenders monitor and control certain credit policies and procedures undertaken by auto dealers.

In the last economic downturn, federal and state banking regulators were active in responding to concerns and trends identified in examinations and have issued many formal enforcement orders requiring capital ratios in excess of regulatory requirements. The FDIC and IDFI regulate the activities in which the Bank may engage primarily for the protection of depositors and not for the protection or benefit of stockholders. In addition, new laws and regulations may increase our costs of regulatory compliance and of doing business and otherwise affect our operations. New laws and regulations may significantly affect the markets in which we do business, the markets for and value of our loans and investments, the fees we can charge and our ongoing operations, costs and profitability. Regulatory changes regarding card interchange fee income do not currently apply to us but could change in the future. Further, legislative proposals limiting our rights as a creditor could result in credit losses or increased expense in pursuing our remedies as a creditor.

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Increases in deposit insurance premiums and special FDIC assessments will negatively impact our earnings.

The Dodd-Frank Act established 1.35% of total insured deposits as the minimum reserve ratio for the FDIC Deposit Insurance Fund effective September 30, 2020. The FDIC adopted a plan under which it will meet this ratio by the statutory deadline and has reached a 1.15% as of 2016. Once the 1.15% ratio is reached, the FDIC is required to offset the effect of the increase in the minimum reserve ratio to 1.35% on institutions with assets less than $10 billion. To implement the offset requirement, FDIC regulations require that institutions with assets of $10.0 billion or more pay a surcharge during a temporary period and smaller institutions will receive credits whenever the reserve ratio reaches 1.38%. The FDIC has not announced how it will implement this offset. In addition to the statutory minimum ratio, the FDIC must set a designated reserve ratio or DRR, which may exceed the statutory minimum. The FDIC has set 2.0% as the DRR.

As required by the Dodd-Frank Act, the FDIC has adopted final regulations under which insurance premiums are based on an institution's total assets minus its tangible equity instead of its deposits. Since the implementation of these changes, we have seen a decline in our deposit insurance premiums. The insurance costs were $788,000, $897,000 and $1.0 million for the years ended December 31, 2016, 2015 and 2014, respectively. Our future deposit insurance premiums may increase if the FDIC determines that it will not meet the required or anticipated minimum reserve ratios discussed, which could have a negative impact on our earnings.

Our accounting policies and methods impact how we report our financial condition and results of operations. Application of these policies and methods may require management to make estimates about matters that are uncertain.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations.  Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally accepted accounting principles and reflect management’s judgment of the most appropriate manner to report our financial condition and results of operations.  In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances yet might result in our reporting materially different amounts than would have been reported under a different alternative.  These accounting policies are critical to presenting our financial condition and results of operations. They may require management to make difficult, subjective or complex judgments about matters that are uncertain.  Materially different amounts could be reported under different conditions or using different assumptions.

Our controls and procedures may be ineffective.

We regularly review and update our internal controls, disclosure controls and procedures and corporate governance policies and procedures. As a result, we may incur increased costs to maintain and improve our controls and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls or procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations or financial condition.

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System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.

The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us and cause existing and potential customers to refrain from doing business with us. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent such damage, there can be no assurance that these security measures will be successful. Though the third party vendors providing key components of our business infrastructure have been carefully chosen by us, we cannot control their actions, and their failures may impact the Bank’s ability to provide services to its customers and cause us to incur significant expense. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on our reputation, financial condition and results of operations.

We may elect or be compelled to seek additional capital in the future, but that capital may not be available when it is needed or on terms acceptable to us.

We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. In addition, we may elect to raise more capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital. Should we be required by regulatory authorities to raise additional capital, we may seek to do so through the issuance of, among other things, our common stock or preferred stock. The issuance of additional shares of common stock or convertible securities to new stockholders would be dilutive to our current stockholders.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, or if the terms of such a capital raise are not advantageous, it may have a material adverse effect on our financial condition, results of operations and prospects.

There may be future sales of additional common stock or preferred stock or other dilution of our equity, which may adversely affect the market price of our common stock.

We are not restricted from issuing additional common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or preferred stock or any substantially similar securities. The market value of our common stock could decline as a result of sales by us of a large number of shares of common stock or preferred stock or similar securities in the market or the perception that such sales could occur.

Our board of directors is authorized to allow us to issue additional common stock, as well as classes or series of preferred stock, generally without any action on the part of the stockholders. In addition, the board has the power, generally without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over the common stock with respect to dividends or upon the liquidation, dissolution or winding-up of our business and other terms. If we issue additional preferred stock in the future that has a preference over the common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, or if we issue additional preferred stock with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the market value of the common stock could be adversely affected.

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Anti-takeover provisions could negatively impact our stockholders.

Provisions in our charter and bylaws, the corporate law of the State of Maryland and federal regulations could delay, defer or prevent a third party from acquiring us, despite the possible benefit to our stockholders, or otherwise adversely affect the market price of any class of our equity securities, including our common stock. These provisions include: a prohibition on voting shares of common stock beneficially owned in excess of 10% of total shares outstanding, supermajority voting requirements for certain business combinations with any person who beneficially owns more than 10% of our outstanding common stock; the election of directors to staggered terms of three years; advance notice requirements for nominations for election to our board of directors and for proposing matters that stockholders may act on at stockholder meetings, a requirement that only directors may fill a vacancy in our board of directors, supermajority voting requirements to remove any of our directors and the other provisions of our charter. Our charter also authorizes our board of directors to issue preferred stock, and preferred stock could be issued as a defensive measure in response to a takeover proposal. In addition, pursuant to federal and state laws and regulations, as a general matter, no person or company, acting individually or in concert with others, may acquire more than 10% of our common stock without prior approval from our regulators.

These provisions may discourage potential takeover attempts, discourage bids for our common stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of, our common stock. These provisions could also discourage proxy contests and make it more difficult for holders of our common stock to elect directors other than the candidates nominated by our board of directors.

The voting limitation provision in our charter could limit your voting rights as a holder of our common stock.

Our charter provides that any person or group who acquires beneficial ownership of our common stock in excess of 10% of the outstanding shares may not vote the excess shares. Accordingly, if you acquire beneficial ownership of more than 10% of the outstanding shares of our common stock, your voting rights with respect to the common stock will not be commensurate with your economic interest in the Company.

We rely on dividends from MutualBank for substantially all of the Company’s revenue.

MutualFirst’s primary source of revenue is dividends from the Bank. In certain instances, the IDFI must be notified of dividends made from the Bank to the Company and may choose to limit Bank dividends. If the Bank is unable to pay dividends, MutualFirst may not be able to service its debt, pay its other obligations or pay dividends on the Company’s common stock, which could have a material adverse impact on our financial condition or the value of your investment in our common stock.

Our common stock trading volume may not provide adequate liquidity for investors.

Our common stock is listed on the Nasdaq Global Market. However, the average daily trading volume in our common stock is less than that of many larger financial services companies. A public trading market having the desired depth, liquidity and orderliness depends on the presence of a sufficient number of willing buyers and sellers for our common stock at any given time. This presence is impacted by general economic and market conditions and investors’ views of our Company. Because our trading volume is limited, any significant sales of our shares could cause a decline in the price of our common stock.

Our directors and executive officers have the ability to influence stockholder actions in a manner that may be adverse to the personal investment objectives of our stockholders.

As of December 31, 2016, our directors and executive officers as a group beneficially owned 962,224 shares, or 11.3%, of our common stock (including immediately exercisable options for 261,467 shares). In addition, our employee stock ownership plan controlled 5.8% of our common stock on that date. In addition, as of December 31, 2016, 58,003 shares were reserved under our current stock benefit plan for future awards for our directors, officers and employees. Due to this significant collective ownership of or control over our common stock, our directors and executive officers may be able to influence the outcome of director elections or block significant transactions, such as a merger or acquisition, or any other matter that might otherwise be favored by other stockholders and could prevent any stockholder action requiring a supermajority vote under our articles of incorporation.

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Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

At December 31, 2016 we had 30 full service offices. Subsequent to year-end we have closed three of the full-service offices throughout our footprint. Our offices are located within east central and northern Indiana. At December 31, 2016, we owned our home office in Muncie, Indiana and all but two of our financial center offices. We lease offices in central and northern Indiana for our trust and brokerage services, financial center offices in Ft. Wayne and Mishawaka, Indiana and loan origination offices in northwestern Indiana and southwest Michigan. The net book value of our investment in premises and leaseholds was approximately $18.8 million at December 31, 2016. We believe that our current facilities are adequate to meet our present and immediately foreseeable needs. See Note 7 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

Item 3. Legal Proceedings

From time to time, we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. We do not anticipate incurring any material liability as a result of such litigation. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosure

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The common stock of MutualFirst Financial, Inc. is traded under the symbol “MFSF” on the Nasdaq Global Market. The table below shows the high and low closing prices for our common stock for the periods indicated. This information was provided by the Nasdaq.

	Stock Price				Dividends
	High		Low		per Share
2016 Quarters:
First Quarter (ended 03/31/16)	$	26.13	$	22.75	$	0.14
Second Quarter (ended 06/30/16)	$	28.20	$	24.82	$	0.14
Third Quarter (ended 09/30/16)	$	28.90	$	27.10	$	0.14
Fourth Quarter (ended 12/31/16)	$	34.90	$	26.50	$	0.16
2015 Quarters:
First Quarter (ended 03/31/15)	$	24.00	$	21.73	$	0.12
Second Quarter (ended 06/30/15)	$	23.30	$	20.06	$	0.12
Third Quarter (ended 09/30/15)	$	24.96	$	22.46	$	0.12
Fourth Quarter (ended 12/31/15)	$	24.92	$	23.03	$	0.12

At December 31, 2016, there were 7,324,233 shares of common stock outstanding and approximately 3,100 common stockholders of record.

Our common stock cash dividend payout policy is continually reviewed by management and the Board of Directors. During 2016, the Company paid total common stock dividends of $0.58 per share, up from $0.48 per share in 2015. The Company intends to continue its policy of paying quarterly cash dividends and hopes to continue to pay dividends at least at the same level as in 2016. However, future common stock dividend payments will depend upon a number of factors, including capital requirements, regulatory limitations, the Company’s financial condition, results of operations and the Bank’s ability to pay dividends to the Company. The Company relies significantly upon dividends from the Bank to accumulate earnings for payment of cash dividends to our common stockholders.

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 one-year period. As of December 31, 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 fourth quarter of 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
Oct		-	$	-		-		199,572
Nov		-		-		-		199,572
Dec		-		-		-		199,572
		-	$	-		-

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Information regarding our equity compensation plans is included in Part III, Item 12 of this Form 10-K. 

Shareholder Performance Graph Presentation –

The following graph and related discussion are being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K and shall not be deemed to be “soliciting materials” or to be “filed” with the SEC (other than as provided in Item 201) nor shall this information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained therein, except to the extent that the Company specifically incorporates it by reference into a filing.

The following graph shows a comparison of stockholder return on MutualFirst Financial Inc.’s common stock with the cumulative total returns for: 1) the Nasdaq Composite^® (U.S.) Index; and 2) the SNL U.S. Bank and Thrift Index, which was compiled by SNL Financial LC of Charlottesville, Virginia. The graph assumes an initial investment of $100 and reinvestment of dividends. The graph is historical only and may not be indicative of possible future performance.

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Item 6. Selected Financial and Other Data

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following information is only a summary and you should read it in conjunction with our consolidated financial statements and accompanying notes contained in Item 8 of this Form 10-K Balances have been updated to reflect the adoption of ASU 2014-01 in January 2015. See Note 25 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

	At or For the Year Ended December 31,
	2016		2015		2014		2013		2012
	(Dollars in thousands)
Selected Financial Condition Data:
Total assets	$	1,553,133	$	1,478,265	$	1,423,423	$	1,391,405	$	1,422,458
Cash and cash equivalents		26,860		20,915		29,575		25,285		32,778
Loans, net		1,157,120		1,068,204		1,003,518		965,966		969,545
Investment securities
Available for sale, at fair value		249,913		261,138		260,806		264,348		281,197
Total deposits		1,153,382		1,091,382		1,079,320		1,113,084		1,184,009
Total borrowings		244,780		235,075		202,616		153,818		86,281
Total stockholders' equity		140,038		137,025		126,752		110,629		139,493
Selected Operations Data:
Total interest income	$	53,802	$	51,776	$	51,178	$	51,667	$	55,348
Total interest expense		9,247		8,803		8,923		11,224		14,704
Net interest income		44,555		42,973		42,255		40,443		40,644
Provision for loan losses		850		125		850		1,300		6,025
Net interest income after provision for loan losses		43,705		42,848		41,405		39,143		34,619
Service fee income		6,124		5,947		5,995		5,989		6,492
Gain on sale of loans and investment securities		5,784		4,612		2,162		1,687		4,701
Other-than-temporary impairment, securities		-		-		-		-		-
Other non-interest income		7,514		6,580		6,728		6,387		4,331
Total non-interest income		19,422		17,139		14,885		14,063		15,524
Salaries and employee benefits		27,427		25,526		23,560		22,492		21,335
Other expenses		18,073		17,621		17,818		17,195		18,930
Total non-interest expenses		45,500		43,147		41,378		39,687		40,265
Income before income taxes		17,627		16,840		14,912		13,519		9,878
Income tax expense		4,386		4,578		3,866		4,136		2,632
Net income		13,241		12,262		11,046		9,383		7,246
Preferred stock dividends and accretion		-		-		-		1,257		1,446
Net income available to common stockholders	$	13,241	$	12,262	$	11,046	$	8,126	$	5,800

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Quarter Ended	Interest Income		Interest Expense		Net Interest Income		Provision for Loan Losses		Net Income Available to Common Shareholders		Basic Earnings Per Common Share		Diluted Earnings Per Common Share
2016
March 31	$	13,034	$	2,272	$	10,762	$	200	$	2,365	$	0.32	$	0.31
June 30		13,258		2,271		10,987		150		4,157		0.56		0.55
September 30		13,567		2,330		11,237		250		3,482		0.48		0.47
December 31		13,943		2,374		11,569		250		3,237		0.44		0.43
Total	$	53,802	$	9,247	$	44,555	$	850	$	13,241	$	1.79	$	1.76
2015
March 31	$	12,683	$	2,165	$	10,518	$	-	$	2,481	$	0.34	$	0.33
June 30		12,731		2,191		10,540		-		3,218		0.44		0.43
September 30		13,049		2,233		10,816		-		3,225		0.44		0.43
December 31		13,313		2,214		11,099		125		3,338		0.45		0.44
Total	$	51,776	$	8,803	$	42,973	$	125	$	12,262	$	1.66	$	1.62
2014
March 31	$	12,738	$	2,319	$	10,419	$	350	$	2,020	$	0.28	$	0.27
June 30		12,744		2,186		10,558		500		2,614		0.37		0.36
September 30		12,803		2,163		10,640		-		2,751		0.38		0.37
December 31		12,893		2,255		10,638		-		3,661		0.51		0.49
Total	$	51,178	$	8,923	$	42,255	$	850	$	11,046	$	1.54	$	1.49

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Reconciliation of Non-GAAP Financial Measures

The annual report on Form 10-K contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). Non-GAAP financial measures, specifically tangible common equity, tangible assets, tangible book value per common share and return on average tangible common equity are used by management to measure the strength of its capital and its ability to generate earnings on tangible capital invested by its shareholders. Although the Company believes these non-GAAP measures provide a greater understanding of its business, they should not be considered a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of these non-GAAP financial measures to the most directly compared GAAP financial measures are included in the following table.

	December 31,
	2016			2015			2014
Total Stockholders' Equity (GAAP)	$	140,038		$	137,025		$	126,752
Less: Intangible Assets		(2,191	)		(2,611	)		(2,905	)
Tangible common equity (non-GAAP)	$	137,847		$	134,414		$	123,847
Total assets (GAAP)	$	1,553,133		$	1,478,265		$	1,423,423
Less: Intangible Assets		(2,191	)		(2,611	)		(2,905	)
Tangible assets (non-GAAP)	$	1,550,942		$	1,475,654		$	1,420,518
Tangible common equity to tangible assets (non-GAAP)		8.89	%		9.11	%		8.72	%
Book value per common share (GAAP)	$	19.12		$	18.46		$	17.52
Less: Effect of Intangible Assets		(0.30	)		(0.35	)		(0.40	)
Tangible book value per common share (non-GAAP)	$	18.82		$	18.11		$	17.12
Return on average stockholders' equity (GAAP)		9.40	%		9.29	%		9.27
Add: Effect of Intangible Assets		0.16			0.20			0.15
Return on average tangible common equity (non-GAAP)		9.56	%		9.49	%		9.42	%
Total tax free interest income (GAAP)
Loans receivable	$	443		$	355		$	183
Investment securities		2,193			1,541			1,071
Total tax free interest income	$	2,636		$	1,896		$	1,254
Total tax free interest income, gross (at 34%)	$	3,994		$	2,873		$	1,900
Net interest margin, tax equivalent (non-GAAP)
Net interest income (GAAP)	$	44,555		$	42,973		$	42,255
Add: Tax effect tax free interest income at 34%		1,358			977			646
Net interest income (non-GAAP)		45,913			43,950			42,901
Divided by: Average interest-earning assets		1,405,326			1,336,622			1,296,809
Net interest margin, tax equivalent		3.27	%		3.29	%		3.31	%
Ratio Summary:
Return on average equity (ROE)		9.40	%		9.29	%		9.27	%
Return on average tangible common equity		9.56	%		9.49	%		9.42	%
Return on average assets (ROA)		0.87	%		0.85	%		0.79	%
Tangible common equity to tangible assets		8.89	%		9.11	%		8.72	%
Net interest margin, tax equivalent		3.27	%		3.29	%		3.31	%

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Overview and Significant Events in 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 27 financial centers in Indiana, trust offices in Fishers and Crawfordsville, Indiana and a loan origination office in New Buffalo, Michigan. MutualFirst also owns MutualFirst Risk Management, a captive insurance company based in Nevada and as of the first quarter 2016, Mutual Risk Advisors, an information security consulting firm based in 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 IDFI and the FDIC.

MutualBank is an Indiana commercial bank regulated by the IDFI and the FDIC. MutualFirst is a bank holding company regulated by the FRB, which is subjected to regulatory capital requirements similar to those imposed on the Bank. For more details on these regulations see “Item 1. Business – How We Are Regulated.”

At December 31, 2016, we had $1.6 billion in assets, $1.2 billion in loans, $1.2 billion in deposits and $140.0 million in stockholders’ equity. The Company’s total risk-based capital ratio at December 31, 2016 was 13.2%, exceeding the 10.0% requirement for a well-capitalized institution. The ratio of average tangible common equity decreased to 8.89% as of year-end 2016 compared to 9.11% at year-end 2015. For the year ended December 31, 2016, net income available to common shareholders was $13.2 million, or $1.79 per basic and $1.76 per diluted share, compared with net income available to common shareholders of $12.3 million, or $1.66 per basic and $1.62 per diluted share for 2015. The details of our 2016 performance are set forth below and in our Consolidated Audited Financial Statements contained in Item 8 of this Form 10-K.

Key aspects of our 2016 operations include:

· Commercial loan balances increased $30.5 million, or 28.7% on an annualized basis in the fourth quarter of 2016, which is seven consecutive quarters of double digit growth on an annualized basis. Commercial loan balances increased $80.5 million, or 21.4% in 2016.

· Non-real estate consumer loan balances increased $21.2 million, or 14.6% in 2016.

· Mortgage loans sold in 2016 of $152.1 million increased compared to mortgage loans sold in 2015 of $145.5 million.

· Deposits increased $62.0 million, or 5.7% in 2016 compared to 2015.

· Tangible book value per common share was $18.82 as of December 31, 2016 compared to $18.11 as of December 31, 2015.

· Net interest income increased $1.6 million in 2016 compared to 2015.

· Net interest margin for 2016 was 3.17% compared 3.22% in 2015.

· Provision for loan losses increased $725,000 in 2016 compared to 2015.

· Non-interest income increased $2.3 million in 2016 compared to 2015.

· Non-interest expenses increased $2.4 million in 2016 compared to 2015.

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

MutualWealth is the wealth management division of the Bank providing a variety of fee-based financial services, including trust, investment, insurance, broker advisory, retirement plan and private banking services, in the Bank’s market area. MutualWealth produces non-interest income for the Bank that is tied primarily to the market value of the portfolios being managed. As of December 31, 2016, MutualWealth had $650.1 million of fiduciary assets and generated $3.9 million in commission income during 2016.

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MutualFinancial Services is the brokerage division of the Bank providing a variety of fee-based financial services related to securities and investment transactions. MutualFinancial Services produces non-interest income for the Bank that is tied primarily to the volume of the transactions being processed. During 2016, MutualFinancial Services generated $1.0 million in commission income.

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, mortgage-backed securities 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 the 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.

The Company continues to reduce the impact of interest rate changes on its net interest income by shortening the term of its interest-earning assets to better match the terms of our interest-bearing liabilities and by selling long-term fixed rate loans and increasing the term of certain liabilities. See “Item 7A - Quantitative and Qualitative Disclosures About Market Risk - Asset and Liability Management and Market Risk” in this Form 10-K. It has been the Company’s strategic objective to change the repricing structure of its interest-earning assets from longer term to shorter term to better match the structure of our interest-bearing liabilities and therefore reduce the impact interest rate changes have on our net interest income. Strategies employed to accomplish this objective have been to increase the originations of variable rate commercial loans and shorter term consumer loans and to sell longer term mortgage loans. The percentage of non-residential consumer and commercial loans to total loans has increased from 47.8% at the end of 2015 to 52.9% as of December 31, 2016. We continued to see improvements in our markets and made significant progress toward achieving our strategic target loan mix. On the liability side of the balance sheet, the Company is employing strategies intended to increase the balance of core deposit accounts, such as low cost checking and money market accounts. The percentage of core deposits to total deposits remained fairly consistent throughout the year. These are ongoing strategies that are dependent on current market conditions and competition. The Company lengthens the term to maturity of FHLB advances when advantageous to lengthen repricing of the liability side of the balance sheet in order to reduce interest rate risk exposure.

During 2016, in keeping with our strategic objective to reduce interest rate risk exposure, the Company also sold $152.1 million of long-term fixed rate loans that had been held for sale, which reduced potential earning assets and therefore had a negative impact on net interest income. This was offset, in the short term, by recognizing a gain on the sale of these loans of $4.8 million.

Recent Accounting Standards

For discussion of recent accounting standards, please see Note 2: Impact of Accounting Pronouncements to our Consolidated Financial Statements in Item 8 of this Form 10-K.

Critical Accounting Policies

The Notes to the Consolidated Financial Statements in Item 8 of this Form 10-K contain 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. 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.

Goodwill is tested for impairment on an annual basis as of December 31, or whenever events or changes in circumstances indicate the carrying amount of goodwill exceeds its implied fair value. No events or changes in circumstances have occurred since the annual impairment test that would suggest is was more likely than not goodwill impairment existed.

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.

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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 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 recoveries related to the value of these securities are recorded as an unrealized gain (as accumulated other comprehensive income (loss) in stockholders’ equity) and not recognized in income until the security is ultimately sold.

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 as discussed below, the Company will more likely than not be able to utilize the remaining deferred tax asset. The Company has generated average positive pre-tax pre-provision earnings of $16.4 million, or 1.1% of pre-tax pre-provision ROA over the previous five years. These earnings would be sufficient to utilize portions of the operating losses, tax credit carryforwards and temporary tax differences over the allowable periods. The analysis supports no additional valuation reserve is needed.

The valuation allowance established is the result of net operating losses for state franchise tax purposes totaling $23,011,000. See Note 14 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K.

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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.

Management Strategy

Our strategy is to operate as an independent, business- and retail- oriented financial institution dedicated to serving customers in our market area. Our commitment is to provide a broad range of products and services to meet the needs of our customers. As part of this commitment, we are looking to increase our emphasis on commercial business products and services. We also operate a fully interactive transactional website that also allows consumers to open accounts. In addition, we are continually looking at cost-effective ways to expand our market area. Financial highlights of our strategy have included:

Broadening Loan Portfolio Diversification. We continue to work toward diversifying our loan portfolio to reduce our reliance on any one type of loan. Approximately 47.8% of our loan portfolio consisted of loans other than consumer real estate loans at the end of 2015. At the end of 2016, that percentage had increased to 52.9%, reflecting an increase of $101.6 million in our commercial and non-residential consumer loan portfolios.

Continuing as a Leading One- to Four-Family Lender in Indiana. We are one of the largest originators of one- to four-family residential loans in our market area. During 2016, we originated $219.7 million of one- to four-family residential first mortgage loans. While the last economic downturn decreased real estate values, we have seen a stabilization and slight increase in our market areas which is leading to an increase in purchase activity as rates have remained low.

Increasing Market Share and Changing Mix of Deposits. We continue to be focused on growth of core deposits, as deposits grew $60.1 million in 2016.

Expanding Wealth Management Presence. We continue to focus on leveraging our operations in the markets in which we serve. Total fiduciary balances remained consistent with that at year-end 2015. Commission income (non-interest income) generated by these relationships during 2016 totaled $3.9 million, an increase of 10.6% over prior year.

Financial Condition at December 31, 2016 Compared to December 31, 2015

General. Total assets at year-end 2016 were $1.6 billion, reflecting a $74.9 million increase during the year, primarily due to the $89.2 million, or 8.2% increase in the gross loan portfolio, excluding loans held for sale. Average interest-earning assets increased $68.7 million, or 5.1%, to $1.4 billion at December 31, 2016 from $1.3 billion at December 31, 2015. Average interest-bearing liabilities increased by $46.8 million, or 4.1% to $1.2 billion at year-end 2016 from $1.1 billion at year-end 2015 reflecting an increase in FHLB advances. Average stockholders’ equity increased by $8.9 million, or 6.7%, during 2016.

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Cash and Investments. Cash and investments decreased from $282.1 million at year-end 2015 to $277.8 million at year-end 2016. The details of our cash and investments are as follows:

	At December 31,				Amount			Percent
	2016		2015		Change			Change
	(Dollars in thousands)
Cash	$	8,503	$	8,610	$	(107	)		(1.24	)%
Interest-bearing demand deposits		18,357		12,305		6,052			49.18
Interest-bearing time deposits		993		-		993			0.00
Securities available for sale (fair value)		249,913		261,138		(11,225	)		(4.30	)
Total	$	277,766	$	282,053	$	(4,287	)		(1.52	)%

At December 31, 2016, our investment portfolio consisted of $160.5 million in government-sponsored agency and government-sponsored entity mortgage-backed securities and collateralized mortgage obligations, $77.7 million in municipal securities and $11.7 million in corporate obligations. At December 31, 2016, these securities had gross unrealized gains of $2.8 million and gross unrealized losses of $4.7 million, of which $3.5 million was primarily due to unrealized losses associated with the increase in treasury rates near the end of the year. We have the ability to hold the trust preferred securities until maturity and believe that we will be able to collect the adjusted amortized cost basis of the securities. See Note 4 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information about our investment securities.

Loans. Our gross loan portfolio, excluding loans held for sale, increased to $1.2 billion at year-end 2016 from $1.1 billion at year-end 2015. The following table reflects the changes in the gross amount of loans, excluding loans held for sale, by type during 2016:

	At December 31,				Amount			Percent
	2016		2015		Change			Change
	(Dollars in thousands)
Real estate
Commercial	$	302,577	$	236,895	$	65,682			27.73	%
Commercial construction and development		22,453		15,744		6,709			42.61
Consumer closed end first mortgage		478,848		491,451		(12,603	)		(2.56	)
Consumer open end and junior liens		71,222		70,990		232			0.33
Total real estate loans		875,100		815,080		60,020			7.36
Consumer loans
Auto		18,939		15,480		3,459			22.34
Boat/RV		141,602		123,621		17,981			14.55
Other		5,892		6,171		(279	)		(4.52	)
Total consumer other		166,433		145,272		21,161			14.57
Commercial and industrial		131,103		123,043		8,060			6.55
Total other loans		297,536		268,315		29,221			10.89
Total loans	$	1,172,636	$	1,083,395	$	89,241			8.24	%

The Bank made significant progress in its strategy to increase commercial and consumer loans as we increased the commercial portfolio by $80.5 million and the non-residential consumer portfolio by $21.2 million during 2016. We actively seek out opportunities to provide financing for new and growing commercial borrowers, as well as refinancing to sound commercial borrowers currently served by other financial institutions. The increase in the commercial and consumer portfolios was partially offset by the decrease in one- to four-family loans during the period. We increased our purchase loan activity while also allowing consumers to refinance their mortgage loans; however we are starting to see those activities slow down as rates are starting to slowly increase. The Bank continues to sell longer term fixed-rate mortgage loans to reduce related interest rate risk.

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Delinquencies and Non-performing Assets. As of December 31, 2016, our total loans delinquent 30-to-89 days was $12.3 million, or 1.1% of total loans, compared to $12.0 million, or 1.1% of total loans, at the end of 2015.

At December 31, 2016, our non-performing assets totaled $6.6 million, or 0.42% of total assets, compared to $9.6 million, or 0.65% of total assets, at December 31, 2015. This $3.0 million, or 31.7%, decrease was due to a decrease in non-performing loans primarily in the commercial real estate portfolio. The table below sets forth the amounts and categories of non-performing assets in our loan portfolio at the dates indicated.

	At December 31,				Amount			Percent
	2016		2015		Change			Change
	(Dollars in thousands)
Non-accruing loans	$	5,144	$	6,904	$	(1,760	)		(25.49	)%
Accruing loans delinquent 90 days or more		237		267		(30	)		(11.24	)
Other real estate owned and repossessed assets		1,199		2,456		(1,257	)		(51.18	)
Total	$	6,580	$	9,627	$	(3,047	)		(31.65	)%

Our non-performing assets decreased in 2016 as local economic conditions improved. The Bank continues to diligently monitor and write down loans that appear to have irreversible weakness. The Bank 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 significant improvement during the year in total classified assets. Total classified assets decreased by 33.9% from $17.5 million at December 31, 2015 to $11.4 million at December 31, 2016.

At December 31, 2016, foreclosed real estate totaled $718,000 and consisted of primarily one- to four-family residential properties within our footprint. The Bank has seen improvement in this portfolio as market values have stabilized, which has decreased the number of new foreclosures and assisted in our sale of existing commercial and residential properties. At December 31, 2016, the Bank had 10 foreclosed residential properties with a book value totaling $552,000. All foreclosed real estate is currently for sale. At the end of 2016, the Bank also held $481,000 in other repossessed assets, such as autos, boats, RVs and horse trailers.

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Allowance for Loan Loss. Allowance for loan losses decreased $259,000 from $12.6 million at December 31, 2015 to $12.4 million December 31, 2016 as reflected below:

	Year Ended December 31,
	2016			2015
	(Dollars in thousands)
Balance at beginning of period	$	12,641		$	13,168
Charge-offs		1,482			1,387
Recoveries		373			735
Net charge-offs		1,109			652
Provisions charged to operations		850			125
Balance at end of period	$	12,382		$	12,641
Ratio of net charge-offs during the period to average loans outstanding during the period		0.10	%		0.06	%
Allowance as a percentage of non-performing loans		230.99	%		176.28	%
Allowance as a percentage of total loans (end of period)		1.06	%		1.17	%

Specific loan loss allocation related to loans that have been individually evaluated for impairment remained unchanged throughout the year, and general loan loss reserves have decreased $259,000 as the non-performing loans and classified assets have improved. Net charge offs for the year 2016 were $1.1 million, or 0.10% of average loans on an annualized basis, compared to $652,000, or 0.06% of average loans, for 2015. As of December 31, 2016, the allowance for loan losses as a percentage of loans receivable and non-performing loans was 1.06% and 231.0%, respectively, compared to 1.17% and 176.3%, respectively, at December 31, 2015. Allowance for loan losses as a percentage of loans receivable decreased primarily due to an increase in the total loan portfolio. Allowance for loan losses as a percentage of non-performing loans increased due to the decrease in non-performing loans as of December 31, 2016. The decrease in the allowance was primarily due to management’s ongoing evaluation of the loan portfolio conditions in our market areas.

Other Assets. Other material changes in our assets during 2016 include a decrease in premises and equipment of $9.8 million primarily due to the sale of an office building, we owned and occupied, in December 2016 and the closing of several financial centers locations that will be finalized in the first quarter of 2017. These transactions produced a $426,000 gain and a $215,000 loss, respectively, in 2016.

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Deposits. Total deposits increased $62.0 million to $1.2 billion at year-end 2016 compared to $1.1 billion at year-end 2015, primarily due to increased interest-bearing checking accounts and certificates of deposit, as reflected in the table below, with corresponding weighted average rates as of the same date. The changes reflected below are consistent with the Bank’s strategy to grow and strengthen core deposit relationships.

	At December 31,
	2016					2015
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount Change			Percent Change
	(Dollars in thousands)
Type of Account:
Non-interest Checking	$	178,046		0.00	%	$	179,542		0.00	%	$	(1,496	)		(0.83	)%
Interest-bearing NOW		292,977		0.27			267,089		0.23			25,888			9.69
Savings		136,314		0.01			131,578		0.01			4,736			3.60
Money Market		173,305		0.26			162,551		0.20			10,754			6.62
Certificates of Deposit		372,740		1.19			350,622		1.14			22,118			6.31
Total	$	1,153,382		0.49	%	$	1,091,382		0.45	%	$	62,000			5.68	%

Borrowings. Total borrowings increased $9.7 million, or 4.1%, to $244.8 million at year-end 2016 primarily due to a $15.0 million increase in FHLB advances to fund increases in the loan portfolio. Other borrowings, decreased $5.3 million to $4.2 million at year-end 2016 due to pre-payment of a holding company note with FTN, leaving outstanding a subordinate debenture.

The Company acquired $5.0 million of issuer trust preferred securities in a 2008 acquisition of another financial institution, which had a net balance of $4.2 million at December 31, 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 bore a variable rate based quarterly at the prevailing three-month LIBOR rate plus 170 basis points, which was 2.66%. The Company has had the right to redeem the trust preferred securities, in whole or in part, without penalty, since September 2010.

Stockholders’ Equity. Stockholders’ equity was $140.0 million as of December 31, 2016, an increase of $3.0 million from December 31, 2015. The increase was primarily due to net income available to common shareholders of $13.2 million and an increase of $976,000 due to exercises of stock options. These increases were partially offset by cash dividends of $4.3 million and stock repurchases of $4.4 million. The Company’s tangible book value per common share as of December 31, 2016 increased to $18.81 compared to $18.11 as of December 31, 2015 and the tangible common equity ratio decreased to 8.88% as of December 31, 2016 compared to 9.11% as of December 31, 2015. The Company and the Bank’s risk-based capital ratios were well in excess of “well-capitalized” levels as defined by all regulatory standards as of December 31, 2016.

Financial Condition at December 31, 2015 Compared to December 31, 2014

General. Total assets at year-end 2015 were $1.5 billion, reflecting a $54.8 million increase during the year, primarily due to the $64.2 million, or 6.3% increase in the gross loan portfolio, excluding loans held for sale. Average interest-earning assets increased $39.8 million, or 30.7%, to $1.34 billion at December 31, 2015 from $1.30 billion at December 31, 2014. Average interest-bearing liabilities increased by $12.4 million, or 1.1% to $1.13 billion at year-end 2015 from $1.12 billion at year-end 2014 reflecting an increase in FHLB advances. Average stockholders’ equity increased by $12.9 million, or 10.8%, during 2015.

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Cash and Securities. Cash and securities (including our bank deposits) decreased from $290.4 million at year-end 2014 to $282.1 million at year-end 2015. The details of our cash and securities are as follows:

	At December 31,				Amount			Percent
	2015		2014		Change			Change
	(Dollars in thousands)
Cash	$	8,610	$	7,475	$	1,135			15.18	%
Interest-bearing demand deposits		12,305		22,100		(9,795	)		(44.32	)
Securities available for sale (fair value)		261,138		260,806		332			0.13
Total	$	282,053	$	290,381	$	(8,328	)		(2.87	)%

At December 31, 2015, our securities portfolio consisted of $192.5 million in government-sponsored agency and government sponsored entity mortgage-backed securities and collateralized mortgage obligations, $57.2 million in municipal securities and $11.5 million in corporate obligations. At December 31, 2015, these securities had gross unrealized gains of $4.9 million and gross unrealized losses of $2.5 million, of which $1.3 million was primarily due to unrealized losses on trust preferred securities. We have the ability to hold the trust preferred securities until maturity and believe that we will be able to collect the adjusted amortized cost basis of the securities. See Note 4 of the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for additional information about our investment securities.

We expect to maintain a similar level of liquid assets in 2016. We believe it is prudent to maintain higher liquidity as we expect increasing loan demand and a possible rise in interest rates.

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Loans. Our gross loan portfolio, excluding loans held for sale, increased to $1.1 billion at year-end 2015 from $1.0 billion at year-end 2014. The following table reflects the changes in the gross amount of loans, excluding loans held for sale, by type during 2015:

	At December 31,				Amount			Percent
	2015		2014		Change			Change
	(Dollars in thousands)
Real estate
Commercial	$	236,895	$	198,019	$	38,876			19.63	%
Commercial construction and development		15,744		33,102		(17,358	)		(52.44	)
Consumer closed end first mortgage		491,451		517,063		(25,612	)		(4.95	)
Consumer open end and junior liens		70,990		71,073		(83	)		(0.12	)
Total real estate loans		815,080		819,257		(4,177	)		(0.51	)
Consumer loans
Auto		15,480		14,712		768			5.22
Boat/RV		123,621		94,761		28,860			30.46
Other		6,171		5,184		987			19.04
Total consumer other		145,272		114,657		30,615			26.70
Commercial and industrial		123,043		88,474		34,569			39.07
Total other loans		268,315		203,131		65,184			32.09
Total Loans	$	1,083,395	$	1,022,388	$	61,007			5.97	%

The Bank made significant progress in the strategy to increase commercial and consumer loans as we increased the commercial portfolio by $56.1 million and the non-residential consumer portfolio by $30.6 million during 2015. We continue to seek opportunities to provide financing for new and growing commercial borrowers as well as refinancing to sound commercial borrowers currently served by other financial institutions. The increase in the commercial and consumer portfolios was partially offset by the decrease in one- to four-family loans during the period. Lower rates have increased our purchase loan activity while also allowing consumers to refinance their mortgage loans; however we are starting to see those activities slow down. The Bank continues to sell longer term fixed-rate mortgage loans to reduce related interest rate risk.

Delinquencies and Non-performing Assets. As of December 31, 2015, our total loans delinquent 30-to-89 days was $12.0 million, or 1.1% of total loans, compared to $14.9 million, or 1.5% of total loans, at the end of 2014.

At December 31, 2015, our non-performing assets totaled $9.6 million, or 0.65% of total assets, compared to $10.7 million, or 0.75% of total assets, at December 31, 2014. This $1.1 million, or 10.4%, decrease was due to a decrease in non-performing loans primarily in the commercial and industrial loan portfolio. The table below sets forth the amounts and categories of non-performing assets in our loan portfolio at the dates indicated.

59

	At December 31,				Amount			Percent
	2015		2014		Change			Change
	(Dollars in thousands)
Non-accruing loans	$	6,904	$	7,212	$	(308	)		(4.27	)%
Accruing loans delinquent 90 days or more		267		226		41			18.14
Other real estate owned and repossessed assets		2,456		3,305		(850	)		(25.72	)
Total	$	9,627	$	10,743	$	(1,116	)		(10.39	)%

Our non-performing assets decreased in 2015 as local economic conditions improved. The Bank continues to diligently monitor and write down loans that appear to have irreversible weakness. The Bank 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 significant improvement during the year in total classified assets. Total classified assets decreased by 33.2% from $26.2 million at December 31, 2014 to $17.5 million at December 31, 2015.

At December 31, 2015, foreclosed commercial real estate totaled $1.0 million and consisted of two commercial properties in our existing lending footprint. The Bank has seen improvement in this portfolio as market values have stabilized, which has decreased the number of new foreclosures and assisted in our sale of existing properties. At December 31, 2015, the Bank had 18 foreclosed residential properties with a book value of $906,000. All foreclosed real estate is currently for sale. At the end of 2015, the Bank also held $513,000 in other repossessed assets, such as autos, boats, RVs and horse trailers.

In addition to the non-performing assets set forth in the table above, as of December 31, 2015, there was an aggregate of $4.9 million in loans with respect to which known information about the possible credit problems of the borrowers have caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the non-performing asset categories. These loans have been considered in management’s determination of the adequacy of our allowance for loan losses. Management reviews each of these relationships at least quarterly to determine if further downgrades and specific loan allocations are prudent.

60

Allowance for Loan Loss. Allowance for loan losses decreased $527,000 from $13.2 million at December 31, 2014 to $12.6 million December 31, 2015 as reflected below:

	Year Ended December 31,
	2015			2014
	(Dollars in thousands)
Balance at beginning of period	$	13,168		$	13,412
Charge-offs		1,387			1,882
Recoveries		735			788
Net charge-offs		652			1,094
Provisions charged to operations		125			850
Balance at end of period	$	12,641		$	13,168
Ratio of net charge-offs during the period to average loans outstanding during the period		0.06	%		0.11	%
Allowance as a percentage of non-performing loans		176.28	%		177.04	%
Allowance as a percentage of total loans (end of period)		1.17	%		1.30	%

Specific loan loss allocation related to loans that have been individually evaluated for impairment increased $100,000, and general loan loss reserves have decreased $627,000 as the non-performing loans and classified assets have improved. Net charge offs for the year 2015 were $652,000, or 0.06% of average loans on an annualized basis, compared to $1.1 million, or 0.11% of average loans for 2014. As of December 31, 2015, the allowance for loan losses as a percentage of loans receivable and non-performing loans was 1.17% and 176.3%, respectively, compared to 1.30% and 177.0%, respectively, at December 31, 2014. Allowance for loan losses as a percentage of loans receivable decreased primarily due to an increase in the total loan portfolio. Allowance for loan losses as a percentage of non-performing loans decreased due to the decrease in allowance, based on management’s evaluation, in conjunction with the decrease in non-performing loans as of December 31, 2015. The decrease in the allowance was primarily due to management’s ongoing evaluation of the loan portfolio conditions in our market areas.

Our non-accrual loans include four loan relationships totaling $2.6 million, or 38.0% of the non-accrual loan total. This total includes two commercial real estate relationship with two outstanding loans totaling $1.8 million and two consumer mortgage relationships totaling $809,000 in outstanding loans.

Other Assets. Other material changes in our assets during 2015 include a decrease in Federal Home Loan Bank stock of $1.5 million.

Deposits. Total deposits increased $12.1 million to $1.09 billion at year-end 2015 compared to $1.08 billion at year-end 2014, primarily due to increased non-interest bearing checking accounts, as reflected in the table below, with corresponding weighted average rates as of the same date, partially offset by an increase in core transaction accounts. These changes are consistent with the Bank’s strategy to grow and strengthen core deposit relationships.

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	At December 31,
	2015					2014
	Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount Change			Percent Change
	(Dollars in thousands)
Type of Account:
Non-interest Checking	$	179,542		0.00	%	$	154,178		0.00	%	$	25,364			16.45	%
Interest-bearing NOW		267,089		0.23			253,042		0.23			14,047			5.55
Savings		131,578		0.01			124,051		0.01			7,527			6.07
Money Market		162,551		0.20			146,847		0.23			15,704			10.69
Certificates of Deposit		350,622		1.14			401,202		1.17			(50,580	)		(12.61	)
Total	$	1,091,382		0.45	%	$	1,079,320		0.67	%	$	12,062			1.12	%

Borrowings. Total borrowings increased $32.5 million, or 16.0%, to $235.1 million at year-end 2015 primarily due to a $33.2 million increase in FHLB advances to fund increases in the loan portfolio. Other borrowings, consisting of a bank loan and trust preferred securities, decreased $716,000 to $9.5 million at year-end 2015 due to regular loan payments.

In 2013, 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 a forward interest rate swap that fixed the rate of the note at 3.92%. The balance of the loan at December 31, 2015 was $5.3 million and matures in December 2017.

The Company acquired $5.0 million of issuer trust preferred securities in a 2008 acquisition of another financial institution, which had a net balance of $4.1 million at December 31, 2015 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 bore a fixed rate of interest of 6.22% through July 2010 and thereafter have to reset quarterly at the prevailing three-month LIBOR rate plus 170 basis points. The Company has had the right to redeem the trust preferred securities, in whole or in part, without penalty, since September 2010.

Stockholders’ Equity. Stockholders’ equity was $137.0 million as of December 31, 2015, an increase of $10.3 million from December 31, 2014. The increase was primarily due to net income available to common shareholders of $12.3 million and an increase of $2.0 million due to exercises of stock options. These increases were partially offset by cash dividends of $3.6 million. The Company’s tangible book value per common share as of December 31, 2015 increased to $18.11 compared to $17.12 as of December 31, 2014 and the tangible common equity ratio increased to 9.11% as of December 31, 2015 compared to 8.72% as of December 31, 2014. MFSF and the Bank’s risk-based capital ratios were well in excess of “well-capitalized” levels as defined by all regulatory standards as of December 31, 2015.

62

Average Balances and Net Interest Margin

The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.

	Year ended December 31,
	2016								2015								2014
	Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate			Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate			Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate
	(Dollars in thousands)
Interest-Earning Assets:
Interest -bearing deposits	$	24,272		$	76		0.31	%	$	19,789		$	14		0.07	%	$	21,121		$	17		0.08	%
Mortgage-backed securities available for sale (1)		173,786			4,059		2.34			195,781			5,294		2.70			212,494			5,679		2.67
Investment securities available for sale (1)		77,266			2,441		3.16			63,041			1,796		2.85			51,845			1,357		2.62
Loans (2)		1,119,408			46,785		4.18			1,047,313			44,190		4.22			997,064			43,522		4.37
Stock in FHLB of Indianapolis		10,594			441		4.16			10,698			482		4.51			14,285			603		4.22
Total interest-earning assets		1,405,326			53,802		3.83			1,336,622			51,776		3.87			1,296,809			51,178		3.95
Non-Interest Earning Assets (net of allowance for loan losses and unrealized gain (loss)		112,601								108,765								109,221
Total Assets	$	1,517,927							$	1,445,387							$	1,406,030
Interest-Bearing Liabilities:
Demand and NOW accounts	$	281,626		$	670		0.24		$	262,424		$	591		0.23		$	257,554		$	578		0.22
Savings deposits		136,102			14		0.01			129,980			13		0.01			124,795			13		0.01
Money market accounts		169,595			452		0.27			160,095			396		0.25			136,732			348		0.25
Certificate accounts		356,157			4,160		1.17			375,102			4,259		1.14			429,738			5,189		1.21
Total deposits		943,480			5,296		0.56			927,601			5,259		0.57			948,819			6,128		0.65
Borrowings		235,967			3,951		1.67			205,066			3,544		1.73			171,471			2,795		1.63
Total interest-bearing accounts		1,179,447			9,247		0.78			1,132,667			8,803		0.77			1,120,290			8,923		0.80
Non-Interest Bearing Accounts		181,594								165,470								152,057
Other Liabilities		16,014								15,271								14,586
Total Liabilities		1,377,055								1,313,408								1,286,933
Stockholders' Equity		140,872								131,979								119,097
Total liabilities and stockholders' equity	$	1,517,927							$	1,445,387							$	1,406,030
Net Earning Assets	$	225,879							$	203,955							$	176,519
Net Interest Income				$	44,555							$	42,973							$	42,255
Net Interest Rate Spread (3)							3.04	%							3.10	%							3.15	%
Net interest margin (4)							3.17	%							3.22	%							3.26	%
Net interest margin, tax equivalent(5)							3.27	%							3.29	%							3.34	%
Average Interest-Earning Assets to Average  Interest- Bearing Liabilities		119.15	%							118.01	%							115.76	%

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

(2) Calculated net of deferred loan fees, loan discounts and loans in process.

(3) Interest rate spread is calculated by subtracting weighted average interest rate cost form weighted average interest rate yield for the period indicated.

(4) The net yield on weighted average interest-earning assets is calculated by dividing net interest income by weighted average interest-earning assets for the period indicated.

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

63

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to changes in volume, which are changes in volume multiplied by the old rate, and changes in rate, which is a change in rate multiplied by the old volume. Changes attributable to both rate and volume, which cannot be segregated, are allocated proportionately to the change due to volume and the change due to rate.

	Year Ended December 31,
	2016 vs. 2015									2015 vs. 2014
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Total Increase (Decrease)			Volume			Rate			Total Increase (Decrease)
	(Dollars in thousands)
Interest-Earning Assets:
Interest -bearing deposits	$	3		$	59		$	62		$	-		$	(3	)	$	(3	)
Investment securities available for sale		(189	)		(401	)		(590	)		(154	)		208			54
Loans receivable		3,043			(448	)		2,595			2,193			(1,525	)		668
Stock in FHLB of Indianapolis		(5	)		(36	)		(41	)		(151	)		30			(121	)
Total interest-earning assets	$	2,852		$	(826	)	$	2,026		$	1,888		$	(1,290	)	$	598
Interest-Bearing Liabilities:
Savings deposits	$	1		$	-		$	1		$	1		$	(1	)	$	-
Money market accounts		24			32			56			59			(11	)		48
Demand and NOW accounts		44			35			79			11			2			13
Certificate accounts		(216	)		117			(99	)		(660	)		(270	)		(930	)
Borrowings		534			(127	)		407			548			201			749
Total interest-bearing liabilities	$	387		$	57		$	444		$	(41	)	$	(79	)	$	(120	)
Change in net interest income							$	1,582								$	718

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Comparison of Results of Operations for the Years Ended December 31, 2016 and 2015.

General. Net income available to common stockholders for the year ended December 31, 2016 was $13.2 million, or $1.79 basic and $1.76 diluted earnings per common share, compared to net income available to common stockholders of $12.3 million, or $1.66 basic and $1.62 diluted earnings per common share, for the year ended December 31, 2015.

Interest Income. Total interest income increased $2.0 million, or 3.9%, to $53.8 million during the year ended December 31, 2016 from $51.8 million during the year ended December 31, 2015. The $68.7 million increase in average interest-earning assets to $1.4 billion at year end 2016 was partially offset by a four basis point decrease in yield on average interest-earning assets to 3.83% in 2016 compared to 3.87% in 2015 as average interest earning assets continued to reprice lower. Interest income on loans in 2016 was $46.8 million compared to $44.2 million in 2015, a result of a $72.1 million increase in average loan balances, partially offset by a four basis point decrease in the weighted average yield on average loans in 2016 to 4.18%. Interest income on investments, including FHLB stock, decreased in 2016 by $631,000 to $6.9 million.

Interest Expense. Interest expense increased $444,000, or 5.0%, to $9.2 million during the year ended December 31, 2016 compared to $8.8 million during the year ended December 31, 2015. The reason for this increase was an increase in average interest-bearing liabilities of $46.8 million, including an increase of $30.9 million in average FHLB advances, partially offset by a six basis point decline in the expense on average advances, and a $15.9 million increase in average interest-bearing deposits, as additional funding was used to fund increased loan demand.

Net Interest Income. Net interest income before the provision for loan losses increased $1.6 million in 2016 compared to 2015. The increase was a result of an increase of $68.7 million in average interest earning assets due to an increase in the average loan portfolio of $72.1 million. This increase was partially offset by the net interest margin decreasing to 3.17% in 2016 compared to 3.22% in 2015, while the tax equivalent net interest margin declined to 3.27% in 2016 compared to 3.29% 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 this Form 10-K.

Provision for Loan Losses. The provision for loan losses for 2016 was $850,000 compared to $125,000 during 2015. The increase was primarily due to our loan portfolio that has increased $88.7 million, or 8.2% over the last year and an increased level of net charge-offs. Net charge-offs for 2016 equaled $1.1 million, or 0.10% of total average loans compared to $652,000, or 0.06% of total average loans, in 2015.

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Non-Interest Income. Non-interest income increased in 2016 by $2.3 million to $19.4 million in 2016.

	Year Ended						Amount			Percent
	12/31/2016			12/31/2015			Change			Change
	(Dollars in thousands)
Non-Interest Income:
Service fee income	$	6,124		$	5,947		$	177			2.98	%
Net realized gain (loss) on sale of securities		1,023			436			587			134.63
Commissions		5,049			4,603			446			9.69
Net gains on sales of loans		4,761			4,176			585			14.01
Net servicing fees		332			274			58			21.17
Increase in cash surrender value of life insurance		1,159			1,184			(25	)		(2.11	)
Loss on sale of other real estate and repossessed assets		(210	)		(111	)		(99	)		89.19
Other income		1,184			630			554			87.94
Total	$	19,422		$	17,139		$	2,283			13.32	%

The increase in non-interest income was driven by an increase in gain on sale of loans due to higher mortgage production over prior year, an increase in commission income due to the trust and wealth management business as we have continued to see growth in our fiduciary assets, and an increase in service charges on deposit accounts due to increased interchange revenue (fees from debit and credit card activity signature based activity) and checking account growth. Other increases included an increase in gain on sale of securities and an increase in other income primarily related to non-recurring life insurance benefit income from death benefit proceeds. 

Non-Interest Expenses. Non-interest expenses increased by $2.4 million to $45.5 million in 2016. 

	Year Ended				Amount			Percent
	12/31/2016		12/31/2015		Change			Change
	(Dollars in thousands)
Non-Interest Expenses:
Salaries and employee benefits	$	27,427	$	25,526	$	1,901			7.45	%
Net occupancy expenses		2,308		2,260		48			2.12
Equipment expenses		1,818		1,831		(13	)		(0.71	)
Data processing fees		1,991		1,746		245			14.03
Advertising and promotion		1,204		1,193		11			0.92
ATM expense		1,536		1,436		100			6.96
Deposit insurance		788		897		(109	)		(12.15	)
Professional fees		1,807		1,695		112			6.61
Software subscriptions and publications		2,117		1,749		368			21.04
Other real estate and repossessed assets		73		374		(301	)		(80.48	)
Other expenses		4,431		4,440		(9	)		(0.20	)
Total	$	45,500	$	43,147	$	2,353			5.45	%

The increase was primarily a result of increases in salaries and employee benefits due primarily to increases in health insurance, an investment in a financial center and commercial lending staff in Fort Wayne, Indiana late in 2015, and increased commission expense for mortgage originators. Additionally, software subscriptions and maintenance increased due to costs associated with upgraded or more efficient software technologies and data processing expenses increased primarily due to increased services being provided. These increases were partially offset by a decrease of $301,000 in foreclosed real estate and repossessed assets expense due to a reduction in the number of foreclosed properties. 

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Income Tax Expense. Income tax expense in 2016 decreased $192,000 compared to 2015. The effective tax rate for 2016 was 24.9% compared to 27.2% for 2015. The reason for the decline was an increase in tax free income due in part to an increase in holdings of tax free municipal securities.

Comparison of Results of Operations for the Years Ended December 31, 2015 and 2014.

General. Net income available to common stockholders for the year ended December 31, 2015 was $12.3 million, or $1.66 basic and $1.62 diluted earnings per common share, compared to net income available to common stockholders of $11.0 million, or $1.54 basic and $1.49 diluted earnings per common share, for the year ended December 31, 2014.

Interest Income. Total interest income increased $598,000, or 1.2%, to $51.8 million during the year ended December 31, 2015 from $51.2 million during the year ended December 31, 2014. The $39.8 million increase in average interest-earning assets to $1.3 billion at year end 2015 was partially offset by an eight basis point decrease in average yield on interest-earning assets to 3.87% in 2015 compared to 3.95% in 2014 as interest earning assets continue to reprice lower. Interest income on loans in 2015 was $44.2 million compared to $43.5 million in 2014, reflecting a $50.2 million increase in average loan balances, partially offset by a 15 basis point decrease in the weighted average yield on loans in 2014 to 4.22%. Interest income on investments, incuding FHLB stock, decreased slightly in 2015 by $67,000 to $7.6 million reflecting seven basis point increase in the weighted average yield on investments in 2015 to 2.81%, offset by the $9.1 million decrease in average investments to $269.5 in 2015.

Interest Expense. Interest expense decreased $120,000, or 1.3%, to $8.8 million during the year ended December 31, 2015 compared to $8.9 million during the year ended December 31, 2014. The primary reason for this decrease was a decline of three basis points on interest-bearing liabilities from 0.80% during 2014 to 0.77% during 2015, which was primarily due to continued re-pricing of deposit accounts. Interest expense on deposits decreased $869,000, due to an eight basis point decline in average rates combined with a $21.2 million decrease in average interest-bearing deposits. Interest expense on borrowings increased $749,000 as a result of a ten basis point increase in average rates and a $33.6 million increase in average borrowings during 2015.

Net Interest Income. Net interest income before the provision for loan losses increased $718,000 in 2015 compared to 2014. The increase was a result of an increase of $39.8 million in average interest-earning assets due to an increase in the average loan portfolio of $50.2 million. This increase was partially offset by the net interest margin decreasing to 3.22% in 2015 compared to 3.26% in 2014. Tax equivalent net interest margin was 3.29% in 2015 compared to 3.31% in 2014. 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 this Form 10-K.

Provision for Loan Losses. The provision for loan losses for the year 2015 was $125,000 compared to $850,000 in 2014. The decrease was primarily due to a decline in net charge-offs and improving asset quality. Net charge-offs for the year 2015 totaled $652,000, or 0.06% of loans, compared to $1.1 million, or 0.11%, in 2014.

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Non-Interest Income. Non-interest income increased in 2015 by $2.3 million, from $14.9 million in 2014.

	Year Ended						Amount			Percent
	12/31/2015			12/31/2014			Change			Change
	(Dollars in thousands)
Non-Interest Income:
Service fee income	$	5,947		$	5,995		$	(48	)		(0.80	)%
Net realized gain (loss) on sale of securities		436			313			123			39.30
Commissions		4,603			4,868			(265	)		(5.44	)
Net gains on sales of loans		4,176			1,849			2,327			125.85
Net servicing fees		274			114			160			140.35
Increase in cash surrender value of life insurance		1,184			1,158			26			2.25
Loss on sale of other real estate and repossessed assets		(111	)		(53	)		(58	)		109.43
Other income		630			641			(11	)		(1.72	)
Total	$	17,139		$	14,885		$	2,254			15.14	%

The increase in non-interest income was driven by a $2.3 million increase in net gain on sale of loans due to increased activity at the Bank and its subsidiary, Summit Mortgage, Inc., which was acquired in the third quarter of 2014. 

Non-Interest Expenses. Non-interest expenses increased by $1.8 million to $43.1 million in 2015. 

	Year Ended				Amount			Percent
	12/31/2015		12/31/2014		Change			Change
	(Dollars in thousands)
Non-Interest Expenses:
Salaries and employee benefits	$	25,526	$	23,560	$	1,966			8.34	%
Net occupancy expenses		2,260		2,258		2			0.09
Equipment expenses		1,831		1,872		(41	)		(2.19	)
Data processing fees		1,746		1,558		188			12.07
Advertising and promotion		1,193		1,497		(304	)		(20.31	)
ATM expense		1,436		1,320		116			8.79
Deposit insurance		897		1,019		(122	)		(11.97	)
Professional fees		1,695		1,628		67			4.12
Software subscriptions and publications		1,749		1,652		97			5.87
Other real estate and repossessed assets		374		631		(257	)		(40.73	)
Other expenses		4,440		4,383		57			1.30
Total	$	43,147	$	41,378	$	1,769			4.28	%

The increase was primarily a result of expenses associated with Summit Mortgage which was acquired in the third quarter of 2014, which increased expenses by $1.6 million in 2015 mainly in salaries and employee benefits. 

Income Tax Expense. Income tax expense in 2015 increased $712,000 compared to 2014. The effective tax rate for 2015 was 27.2% compared to 25.9% for 2014 due to increased pre-tax income and decreased low income housing credits.

68

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 December 31, 2016, our ratio was 23.5%. 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 while maintaining an adequate level of investments. 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 and municipal 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 maintain 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 December 31, 2016, on a consolidated basis, the Company had $277.8 million in cash and investment securities available for sale and $4.1 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 December 31, 2016, the Bank had the ability to borrow an additional $29.5 million in FHLB advances and $40.0 million in fed funds. In addition, we have historically sold 15- and 30-year long-term, 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 December 31, 2016, the Company, on an unconsolidated basis, had $1.1 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.

69

We use our sources of funds primarily to meet ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. At December 31, 2016, the approved outstanding loan commitments, including unused lines of credit, amounted to $227.4 million. Certificates of deposit scheduled to mature in one year or less at December 31, 2016, totaled $190.1 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.

70

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 year ended December 31, 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 December 31, 2016, the Bank had $118.8 million in commitments to make loans, $8.7 million in undisbursed portions of closed loans, $97.4 million in unused lines of credit and $2.5 million in standby letters of credit. In addition, on a consolidated basis, at December 31, 2016, the Company had $244.8 million in outstanding non-deposit borrowings, primarily FHLB advances, of which $70.0 million is due during 2017.

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.” 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.

At December 31, 2016, the Bank’s regulatory capital exceeded the FDIC regulatory requirements, and the Bank was well-capitalized under regulatory prompt corrective action standards. In addition, at December 31, 2016, the Company’s capital levels exceeded the FRB’s requirements, and the Company was considered well-capitalized under FRB guidelines. Consistent with our goals to operate a sound and profitable organization, our policy is for the Bank to maintain well-capitalized status.

Our capital ratios at December 31, 2016 are reflected 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	$	138,971		9.0	%	$	61,914		4.0	%		N/A		N/A
MutualBank		136,301		8.8			61,832		4.0		$	77,290		5.0	%
Common Equity Tier 1 Capital Level (2) :
MutualFirst Consolidated	$	136,606		11.9	%	$	51,729		4.5	%		N/A		N/A
MutualBank		136,301		11.9			51,696		4.5		$	74,672		6.5	%
Tier 1 Risk-Based Capital Level (2) :
MutualFirst Consolidated	$	138,971		12.1	%	$	68,973		6.0	%		N/A		N/A
MutualBank		136,301		11.9			68,928		6.0		$	91,904		8.0	%
Total Risk-Based Capital Level (3) :
MutualFirst Consolidated	$	151,353		13.2	%	$	91,963		8.0	%		N/A		N/A
MutualBank		148,683		12.9			91,904		8.0		$	114,880		10.0	%

⁽¹⁾ Tier 1 Capital to Average Total Assets of $1.5 billion for the Bank and Company at December 31, 2016.

⁽²⁾ Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at December 31, 2016.

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

⁽⁴⁾ Total Capital to Risk-Weighted Assets.

71

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 7A. Quantitative and Qualitative Disclosures About Market Risk

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.

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.

72

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 2016 we sold in the secondary market $152.1 million of primarily fixed rate, one- to four-family mortgage loans with a term to maturity of 15 years or greater, which was 69% of all such loans originated by the Bank and its subsidiaries during the year.

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 December 31, 2016.

	Percentage Change in
	Net Interest Income			NPV
Rate Shock:
Up 400 basis points		(8.4	)%		(17.8	)%
Up 300 basis points		(5.8	)%		(13.3	)%
Up 200 basis points		(3.4	)%		(8.7	)%
Up 100 basis points		(1.5	)%		(4.7	)%
Down 100 basis points		(5.3	)%		(5.4	)%

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		(3.3	)%		(15.6	)%
Up 300 basis points		(3.1	)%		(12.1	)%
Up 200 basis points		(2.4	)%		(8.2	)%
Up 100 basis points		(1.3	)%		(4.6	)%
Down 100 basis points		(5.3	)%		(5.4	)%

The analyses indicate that net interest income and NPV would decline in an instantaneous upward or downward rate shock. While our balance sheet is slightly liability sensitive, the model does not take into consideration any rates below zero. Since deposit rates are close to the floor, there would be limited opportunity to reprice deposits in a downward rate environment.

73

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 on the previous page.

74

Item 8. Financial Statements and Supplementary Data

MutualFirst Financial, Inc.

Report of Independent Registered Public Accounting Firm and

Consolidated Financial Statements

December 31, 2016, 2015 and 2014

75

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

MutualFirst Financial, Inc.

Muncie, Indiana

We have audited the accompanying consolidated balance sheets of MutualFirst Financial, Inc. as of December 31, 2016, and 2015, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2016. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audits included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MutualFirst Financial, Inc. as of December 31, 2016, and 2015, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), MutualFirst Financial Inc.'s internal control over financial reporting as of December 31 , 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2017, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ BKD, LLP

Indianapolis, Indiana

March 16, 2017

76

MutualFirst Financial, Inc.

Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)

	2016			2015
Assets
Cash and due from banks	$	8,503		$	8,610
Interest-bearing demand deposits		18,357			12,305
Cash and cash equivalents		26,860			20,915
Interest-bearing time deposits		993			-
Investment securities available for sale (carried at fair value)		249,913			261,138
Loans held for sale		4,063			5,991
Loans, net of allowance for loan losses of $12,382 and $12,641, at December 31, 2016 and 2015, respectively		1,157,120			1,068,204
Premises and equipment, net		21,200			31,048
Federal Home Loan Bank stock		10,925			10,482
Deferred tax asset, net		12,037			12,084
Cash value of life insurance		51,594			51,209
Goodwill		1,800			1,800
Other real estate owned and repossessed assets		1,199			2,456
Other assets		15,429			12,938
Total assets	$	1,553,133		$	1,478,265
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing	$	178,046		$	179,542
Interest-bearing		975,336			911,840
Total deposits		1,153,382			1,091,382
Federal Home Loan Bank advances		240,591			225,617
Other borrowings		4,189			9,458
Other liabilities		14,933			14,783
Total liabilities		1,413,095			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 December 31, 2016 and 2015, respectively		73			74
Additional paid-in capital		74,164			77,363
Retained earnings		67,055			58,098
Accumulated other comprehensive income (loss)		(1,254	)		1,490
Total stockholders' equity		140,038			137,025
Total liabilities and stockholders' equity	$	1,553,133		$	1,478,265

See Notes to Consolidated Financial Statements

77

MutualFirst Financial, Inc.

Consolidated Statements of Income
(In Thousands, Except Share and Per Share Data)

	2016			2015			2014
Interest and Dividend Income
Loans receivable	$	46,785		$	44,190		$	43,522
Investment securities		6,500			7,090			7,036
Federal Home Loan Bank stock		441			482			603
Deposits with financial institutions		76			14			17
Total interest and dividend income		53,802			51,776			51,178
Interest Expense
Deposits		5,296			5,259			6,128
Federal Home Loan Bank advances		3,604			3,063			2,225
Other		347			481			570
Total interest expense		9,247			8,803			8,923
Net Interest Income		44,555			42,973			42,255
Provision for loan losses		850			125			850
Net Interest Income After Provision for Loan Losses		43,705			42,848			41,405
Non-interest Income
Service fee income		6,124			5,947			5,995
Net realized gain on sales of available for sale securities		1,023			436			313
Commissions		5,049			4,603			4,868
Net gains on sales of loans		4,761			4,176			1,849
Net servicing fees		332			274			114
Increase in cash value of life insurance		1,159			1,184			1,158
Loss on sale of other real estate and repossessed assets		(210	)		(111	)		(53	)
Other income		1,184			630			641
Total non-interest income		19,422			17,139			14,885
Non-interest Expenses
Salaries and employee benefits		27,427			25,526			23,560
Net occupancy expenses		2,308			2,260			2,258
Equipment expenses		1,818			1,831			1,872
Data processing fees		1,991			1,746			1,558
ATM and debit card expenses		1,536			1,436			1,320
Deposit insurance		788			897			1,019
Professional fees		1,807			1,695			1,628
Advertising and promotion		1,204			1,193			1,497
Software subscriptions and maintenance		2,117			1,749			1,652
Other real estate and repossessed assets		73			374			631
Other expenses		4,431			4,440			4,383
Total non-interest expenses		45,500			43,147			41,378
Income Before Income Tax		17,627			16,840			14,912
Income tax expense		4,386			4,578			3,866
Net Income Available to Common Shareholders	$	13,241		$	12,262		$	11,046
Earnings Per Common Share
Basic	$	1.79		$	1.66		$	1.54
Diluted	$	1.76		$	1.62		$	1.49
Dividends Per Common Share	$	0.58		$	0.48		$	0.32

See Notes to Consolidated Financial Statements

78

MutualFirst Financial, Inc.

Consolidated Statements of Comprehensive Income
(In Thousands)

	2016			2015			2014
Net Income	$	13,241		$	12,262		$	11,046
Other Comprehensive Income (Loss)
Net unrealized holding gain (loss) on securities available for sale		(3,297	)		(1,186	)		8,921
Net unrealized holding gain on securities available for sale for which a portion of an other-than-temporary impairment has been recognized in income		39			12			381
Reclassification adjustment for realized gains included in net income		(1,023	)		(436	)		(313	)
Net unrealized gain on derivative used for cash flow hedges		1			108			150
Net unrealized gain (loss) related to defined benefit plan		62			77			(209	)
		(4,218	)		(1,425	)		8,930
Income tax (expense) benefit related to other comprehensive income (loss)		1,474			537			(3,137	)
Other comprehensive income (loss), net of tax		(2,744	)		(888	)		5,793
Comprehensive Income	$	10,497		$	11,374		$	16,839

See Notes to Consolidated Financial Statements

79

MutualFirst Financial, Inc.

Consolidated Statements of Stockholders’ Equity
(In Thousands, Except Share and Per Share Data)

	Common Stock			Paid-in Capital Common			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balances December 31, 2013	$	71		$	73,336		$	40,637		$	(3,415	)	$	110,629
Net income								11,046						11,046
Other comprehensive income, net of taxes											5,793			5,793
Stock options, exercised		1			1,346									1,347
Tax benefit on stock options					234									234
Cash dividends, common stock ($.32 per share)								(2,297	)					(2,297	)
Balances December 31, 2014		72			74,916			49,386			2,378			126,752
Net income								12,262						12,262
Other comprehensive loss, net of taxes											(888	)		(888	)
Stock options, exercised		2			2,009									2,011
Tax benefit on stock options					438									438
Cash dividends, common stock ($.48 per share)								(3,550	)					(3,550	)
Balances December 31, 2015		74			77,363			58,098			1,490			137,025
Net income								13,241						13,241
Other comprehensive loss, net of taxes											(2,744	)		(2,744	)
Stock repurchased		(2	)		(4,352	)								(4,354	)
Stock options, exercised		1			975									976
Tax benefit on stock options					178									178
Cash dividends, common stock ($.58 per share)								(4,284	)					(4,284	)
Balances December 31, 2016	$	73		$	74,164		$	67,055		$	(1,254	)	$	140,038

See Notes to Consolidated Financial Statements

80

MutualFirst Financial, Inc.

Consolidated Statements of Cash Flows
(In Thousands, Except Share and Per Share Data)

	2016			2015			2014
Operating Activities
Net income	$	13,241		$	12,262		$	11,046
Items not requiring cash
Provision for loan losses		850			125			850
Depreciation and amortization		5,006			4,546			4,113
Deferred income tax		1,537			1,926			1,087
Increase in cash value of life insurance		(1,159	)		(1,184	)		(1,158	)
Loans originated for sale		(150,620	)		(145,749	)		(67,295	)
Proceeds from sales of loans held for sale		156,827			149,613			64,614
Gain on sale of loans held for sale		(4,761	)		(4,176	)		(1,849	)
Net gain on sale of securities, available for sale		(1,023	)		(436	)		(313	)
Gain on bank owned life insurance		(346	)		(204	)		-
Loss on sale of other real estate and repossessed assets		210			111			53
Change in
Interest receivable and other assets		(1,349	)		(1,321	)		(386	)
Interest payable and other liabilities		(5	)		277			774
Other adjustments		143			143			474
Net cash provided by operating activities		18,551			15,933			12,010
Investing Activities
Net change in interest-bearing time deposits		(993	)		-			-
Purchases of securities, available for sale		(88,161	)		(67,414	)		(48,001	)
Proceeds from maturities and paydowns of securities, available for sale		37,872			41,824			31,709
Proceeds from sales of securities, available for sale		57,037			23,109			28,317
Redemption of Federal Home Loan Bank stock		-			2,154			2,427
Purchase of Federal Home Loan Bank stock		(443	)		(672	)		-
Net change in loans		(92,946	)		(67,561	)		(41,611	)
Purchases of premises and equipment		(2,079	)		(2,413	)		(1,306	)
Cash paid in acquisition, net		-			-			(900	)
Proceeds from real estate owned sales		2,497			2,260			7,605
Proceeds from bank owned life insurance		1,120			1,181			-
Proceeds from sale of premises and equipment		9,490			-			-
Net cash used in investing activities		(76,606	)		(67,532	)		(21,760	)
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits		39,883			62,642			36,828
Certificates of deposit		22,117			(50,580	)		(70,593	)
Proceeds from FHLB advances		316,300			355,700			493,700
Repayments of FHLB advances		(301,326	)		(322,525	)		(444,186	)
Repayments of other borrowings		(5,312	)		(759	)		(759	)
Cash dividends		(4,284	)		(3,550	)		(2,297	)
Stock options exercised		976			2,011			1,347
Stock repurchased		(4,354	)		-			-
Net cash provided by financing activities		64,000			42,939			14,040
Net Change in Cash and Cash Equivalents		5,945			(8,660	)		4,290
Cash and Cash Equivalents, Beginning of Period		20,915			29,575			25,285
Cash and Cash Equivalents, End of Period	$	26,860		$	20,915		$	29,575
Additional Cash Flows Information
Interest paid	$	9,096		$	8,827		$	8,857
Income tax paid		2,650			2,850			2,500
Transfers from loans to foreclosed assets		1,450			1,301			2,129
Mortgage servicing rights capitalized		482			460			278
Transfers from fixed assets to other assets		763			702			-

See Notes to Consolidated Financial Statements

81

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 1:Nature of Operations and Summary of Significant Accounting Policies

The accounting and reporting policies of MutualFirst Financial, Inc. (Company) and its wholly owned subsidiaries, MFBC Statutory Trust, MutualFirst Risk Management, Inc., Mutual Risk Advisors, Inc., and MutualBank (Bank) and the Bank’s wholly owned subsidiaries, Mishawaka Financial Services, Mutual Federal Investment Company and the wholly owned subsidiary of Mutual Federal Investment Company, Mutual Federal REIT, Inc. and Summit Service Corp. and their wholly owned subsidiary, Summit Mortgage, Inc., 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.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, goodwill, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, loan servicing rights, valuation of deferred tax assets, other-than-temporary impairments (OTTI) and fair value of financial instruments.

The Bank generates mortgage, consumer and commercial loans and receives deposits from customers located primarily in North and Central Indiana. The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Mutual Federal Investment Company invests in various investment securities and loans through Mutual Federal REIT, Inc.

Consolidation - The consolidated financial statements include the accounts of the Company, the Bank, and the Bank’s subsidiaries, after elimination of all material intercompany transactions.

Cash Equivalents - The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2016 and 2015, cash equivalents consisted primarily of money market accounts with brokers and checking accounts with government sponsored entities.

At December 31, 2016, the Company’s cash accounts exceeded federally insured limits by approximately $6.7 million. Included in this amount are uninsured accounts of approximately $2.9 million at the Federal Reserve Bank of Chicago and Federal Home Loan Bank of Indianapolis.

Interest-bearing time deposits – The fair value of interest-bearing time deposits approximates carrying value.

Derivative Instruments – The Company occasionally enters into derivative financial instruments as part of its interest rate risk strategies. These derivative financial instruments consist primarily of interest rate swaps. These instruments are carried at the fair value of the derivatives and reflects the estimated amounts that would have been received to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information.

82

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The Company offers interest rate derivative products (e.g. interest rate swaps) to certain of its high-quality commercial borrowers. This product allows customers to enter into an agreement with the Company to swap their variable rate loan to a fixed rate. These derivative products are designed to reduce, eliminate or modify the risk of changes in the borrower’s interest rate. The extension of credit incurred through the execution of these derivative products is subject to the same approvals and rigorous underwriting standards as the related traditional credit product. The Company limits its risk exposure to these products by entering into a mirror-image, offsetting swap agreement with a separate, well-capitalized and rated counterparty. These transactions are ratified by the Asset Liability Committee. By using these interest rate swap arrangements, the Company is also better insulated from the interest rate risk associated with underwriting fixed-rate loans. These derivative do not qualify for hedge accounting. The derivatives are recorded on the balance sheet at fair value and changes in fair value of both the customer and the offsetting swap agreements are recorded (and essentially offset) in non-interest income.

Investment Securities - Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. At December 31, 2016 and 2015, no securities were classified as held to maturity. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. When the Company does not intend to sell a debt security, and it is more likely than not that, the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

The Company’s consolidated statement of income reflects the full impairment (that is, the differences between the security’s amortized cost basis and fair value) on debt securities that the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis. For available for sale and held-to-maturity debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.

For equity securities, when the Company has decided to sell an impaired available for sale security and does not expect the fair value of the security to fully recover before the expected time of sale, the security is deemed other-than-temporarily impaired in the period in which the decision to sell is made. The Company recognizes an impairment loss when the impairment is deemed other than temporary even if a decision to sell has not been made.

Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers the length of time and extent that fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Loans held for sale are carried at the lower of aggregate cost or market. Market is determined using the aggregate method. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income based on the difference between estimated sales proceeds and aggregate cost.

83

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on mortgage, consumer and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual 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.

Discounts and premiums on purchased residential real estate and commercial loans is amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.

Allowance for loan losses - The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the inability to collect a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

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 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 historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior three years. Management believes the three year historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed.

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.

84

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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 allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the ability to collect the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Premises and equipment are carried at cost net of accumulated depreciation. Depreciation is computed using the straight-line method based principally on the estimated useful lives of the assets which range from 3 to 50 years. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations.

85

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank (FHLB) system. The required investment in the common stock is based on a predetermined formula, carried at cost and is evaluated for impairment.

Mortgage-servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets. Under the servicing assets and liabilities accounting guidance, servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. The Company subsequently measures each class of servicing asset using the amortization method. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment based on fair value at each reporting date.

Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. These variables change from quarter to quarter as market conditions and projected interest rates change, and may have an adverse impact on the value of the mortgage servicing right and may result in a reduction to noninterest income.

Each class of separately recognized servicing assets subsequently measured using the amortization method are evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment. Changes in valuation allowances are reported with net servicing fees on the income statement. Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.

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

Investment in limited partnerships is recorded primarily on the proportional amortization method of accounting. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).

Intangible assets are being amortized on an accelerated basis over periods ranging from three to 11 years. Such assets are periodically evaluated as to the recoverability of their carrying value.

Income taxes are accounted for in accordance with income tax accounting guidance. The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the balance sheet method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

86

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Deferred tax assets are evaluated on a quarterly basis for recoverability based on all available evidence. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between our future projected operating performance and our actual results. We are required to establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the more-likely-than-not criterion, we evaluate all positive and negative available evidence as of the end of each reporting period. Future adjustments to the deferred tax asset valuation allowance, if any, will be determined based upon changes in the expected realization of the net deferred tax assets. The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income in either the carry back or carry forward periods under applicable tax laws. Due to significant estimates utilized in establishing the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record adjustments to the valuation allowance in the near term if estimates of future taxable income during the carry forward period are reduced. Such a charge could have a material adverse effect on our results of operations, financial condition, and capital position.

Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.

The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company files consolidated income tax returns with its subsidiaries.

Earnings per share is computed based upon the weighted-average common and common equivalent shares outstanding during each year.

Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized gains (losses) on available for sale securities, unrealized gains (losses) on available for sale securities for which a portion of an other-than-temporary impairment has been recognized in income, unrealized and realized gains and losses in derivative financial instruments and changes in the funded status of defined benefit pension plans.

Stock options - The Company has stock-based employee compensation plans, which are described more fully in Note 20.

Note 2:Impact of Accounting Pronouncements

In August 2016, the FASB issued 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 by specifically addressing eight specific areas. The amendments are effective for the Company for annual and interim periods beginning in the first quarter of 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effects that this ASU will have on its financial statements, specifically the Statement of Cash Flows, and does not expect these effects to be material.

87

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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 provide financial statement users with useful information about the expected credit losses on financial instruments and other commitments to extend credit.

· The ASU requires that a financial assets measured at amortized cost (primarily for the Company, loans) to be presented at the amount net of a valuation allowance for credit losses, and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. The new model will be based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current U.S. GAAP in that current U.S. GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.

· This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down.

This ASU will be effective for the Company for interim and annual periods beginning in the first quarter of 2020. Earlier adoption is permitted beginning in the first quarter of 2019. The Company is in the evaluation stage for this ASU in order to determine the most appropriate method of implementation and all resources and data (both current and historical) needed.

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. This Update includes amendments that currently apply, or may apply in the future, to the Corporation related to the following: (1) accounting for the difference between the deduction for tax purposes and the amount of compensation cost recognized for financial reporting purposes; (2) classification of excess tax benefits on the statement of cash flows; (3) accounting for forfeitures; (4) accounting for awards partially settled in cash in excess of the employer’s minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. The amendments in this Update were effective for the Company for annual and interim periods beginning in the first quarter 2017. The ASU provides separate transition provisions for each of the amendments. Initial adoption of this ASU in 2017 did not have a significant impact on the Company.

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 ASU: (1) eliminates 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; (2) requires 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; and (3) 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 were effective for the Company for annual and interim periods beginning in the first quarter 2017. 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. Initial adoption of this ASU in 2017 did not have a significant impact on the Company.

88

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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. These changes will increase transparency among companies by recognizing lease assets and liabilities on the balance sheet and disclosing additional information about lease arrangements. The amendments in this update are effective for annual and interim periods beginning in the first quarter of 2019. The Company has operating leases in place for some locations as well as equipment and is in the early stages of evaluating the potential impact of adopting this amendment.

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: (1) 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); (2) 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; and (3) eliminates the requirement 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 the Company for annual and interim periods beginning in the first quarter of 2018. Current evaluation would indicate that the primary area impacted by the amendments of this ASU will be our investment in Federal Home Loan Bank stock, which is an equity security and does not have a readily determinable fair value. See Note 1 – Significant Accounting Policies, “Federal Home Loan Bank Stock” for information regarding the Company’s investment. The adoption of ASU 2016-01 is not anticipated to have a material effect on the Company’s consolidated financial statements.

Note 3:Restriction on Cash

The Bank is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank of Chicago. The reserve requirement at December 31, 2016 was $2,271,000.

89

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 4: Investment Securities

The amortized costs and approximate fair values, together with gross unrealized gains and losses on securities, are as follows:

	2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale Securities
Mortgage-backed securities	$	92,871	$	802	$	(1,156	)	$	92,517
Collateralized mortgage obligations		68,621		269		(843	)		68,047
Municipal obligations		77,474		1,716		(1,508	)		77,682
Corporate obligations		12,822		78		(1,233	)		11,667
Total investment securities	$	251,788	$	2,865	$	(4,740	)	$	249,913

	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

All mortgage-backed securities and collateralized-mortgage obligations held by the Company as of December 31, 2016 were in government-sponsored and federal agency securities.

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 December 31, 2016 and 2015 was $143.8 million and $97.6 million, which is approximately 57.6 percent and 37.4 percent 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 declines in fair value for these securities 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.

90

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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 December 31, 2016 and 2015:

	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	$	58,056	$	(1,156	)	$	-	$	-		$	58,056	$	(1,156	)
Collateralized mortgage obligations		41,769		(683	)		4,688		(160	)		46,457		(843	)
Municipal obligations		31,907		(1,507	)		337		(1	)		32,244		(1,508	)
Corporate obligations		-		-			7,076		(1,233	)		7,076		(1,233	)
Total temporarily impaired securities	$	131,732	$	(3,346	)	$	12,101	$	(1,394	)	$	143,833	$	(4,740	)

	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	)

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

The unrealized losses on the Company’s investment in CMOs and MBSs were caused by interest rate changes and illiquidity. 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 illiquidity 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 these investments to be other-than-temporarily impaired at December 31, 2016.

Municipals

The unrealized losses on the Company’s investments in securities of state and political subdivisions were caused by changes in interest rates and illiquidity. 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 the investment and it is not more likely than not that the Company will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity. The Corporation does not consider the investment securities to be other-than-temporarily impaired at December 31, 2016.

91

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Corporate Obligations

The Company’s unrealized loss on investments in corporate obligations primarily relates to 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 several industry analysts. The Company currently expects some of the securities to settle at a price less than the amortized cost basis of the investment (that is, the Company expects to recover less than the entire amortized cost basis of the security). The Company has recognized a loss equal to the credit loss 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 the investments to be other-than-temporarily impaired at December 31, 2016.

Other-Than-Temporary Impairment

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 where the security is not a beneficial interest in securitized financial assets, the Company uses debt and equity securities impairment 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.

The Bank’s trust preferred securities valuation was prepared by an independent third party. Their approach to determining fair value involved several steps including:

· Detailed credit and structural evaluation of each piece of collateral in the trust preferred securities;

· Collateral performance projections for each piece of collateral in the trust preferred security;

· Terms of the trust preferred structure, as laid out in the indenture; and

· Discounted cash flow modeling.

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 no active market 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 make adjustments as necessary to reflect this additional risk.

92

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The default and recovery probabilities for each piece of collateral were formed based on the evaluation of the collateral credit and a review of historical industry default data and current/near-term operating conditions. For collateral that has already defaulted, the Company assumed no recovery. For collateral that was in deferral, the Company assumed a recovery of 10% of par for banks, thrifts or other depository institutions and 15% of par for insurance companies. Although the Company conservatively assumed that the majority of the deferring collateral continues to defer and eventually defaults, we also recognize there is a possibility that some deferring collateral may become current at some point in the future.

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 table provides information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income.

	Accumulated Credit Losses
	2016		2015		2014
Credit losses on debt securities held
Beginning of period	$	109	$	109	$	1,205
Reductions related to actual losses incurred		-		-		-
Reductions for previous credit losses realized on securities sold during the year		-		-		(1,096	)
As of December 31,	$	109	$	109	$	109

The amortized cost and fair value of securities available for sale at December 31, 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
One to five years	$	5,345	$	5,353
Five to ten years		14,386		14,861
After ten years		70,565		69,135
		90,296		89,349
Mortgage-backed securities		92,871		92,517
Collateralized mortgage obligations		68,621		68,047
Totals	$	251,788	$	249,913

The Company did not have securities pledged as collateral, to secure public deposits or for other purposes as of December 31, 2016 or 2015.

Proceeds from sales of securities available for sale during 2016, 2015 and 2014 were $57,037,000, $23,109,000 and $28,317,000, respectively. Gross gains of $1,094,000, $436,000 and $1,176,000 in 2016, 2015 and 2014 were recognized on those sales. Gross losses of $71,000, $0 and $863,000 in 2016, 2015 and 2014 were recognized on those sales.

93

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 5: Loans and Allowance

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

	December 31,
	2016			2015
Real estate
Commercial	$	302,577		$	236,895
Commercial construction and development		22,453			15,744
Consumer closed end first mortgage		478,848			491,451
Consumer open end and junior liens		71,222			70,990
		875,100			815,080
Other loans
Consumer loans
Auto		18,939			15,480
Boat/RVs		141,602			123,621
Other		5,892			6,171
Commercial and industrial		131,103			123,043
		297,536			268,315
Total loans		1,172,636			1,083,395
Undisbursed loans in process		(8,691	)		(7,432	)
Unamortized deferred loan costs, net		5,557			4,882
Allowance for loan losses		(12,382	)		(12,641	)
Net loans	$	1,157,120		$	1,068,204

Year-end non-accrual loans, segregated by class of loans, were as follows:

	December 31,
	2016		2015
Real estate
Commercial	$	912	$	2,356
Commercial construction and development		-		-
Consumer closed end first mortgage		3,626		3,592
Consumer open end and junior liens		335		783
Consumer loans
Auto		5		-
Boat/RVs		224		81
Other		24		67
Commercial and industrial		18		25
	$	5,144	$	6,904

94

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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 managements’ opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions, but never later than 90 days past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

All interest accrued but not collected for loans that are placed on nonaccrual 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.

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

	December 31, 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 and Accruing
Real estate
Commercial	$	854	$	142	$	785	$	1,781	$	300,796	$	302,577	$
Commercial construction and development		-		-		-		-		22,453		22,453
Consumer closed end first mortgage		6,789		1,554		3,675		12,018		466,830		478,848		237
Consumer open end and junior liens		512		166		304		982		70,240		71,222
Consumer loans
Auto		103		25		5		133		18,806		18,939
Boat/RVs		1,376		305		213		1,894		139,708		141,602
Other		89		26		13		128		5,764		5,892
Commercial and industrial		497		32		8		537		130,566		131,103
	$	10,220	$	2,250	$	5,003	$	17,473	$	1,155,163	$	1,172,636	$	237

95

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	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 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		-
	$	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 commercial 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 is accounted for on the cash-basis method until qualifying for return to accrual. Interest is accrued per the contract for impaired loans that are performing.

96

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The following tables present impaired loans for the years ended December 31, 2016, 2015 and 2014:

	December 31, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	665	$	665	$	-	$	2,207	$	68
Commercial construction and development		822		822		-		874		40
Consumer closed end first mortgage		1,869		1,869		-		1,328		-
Consumer open end and junior liens		-		-		-		193		-
Commercial and industrial		187		187		-		204		1
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		416		-
Total
Real estate
Commercial	$	879	$	879	$	100	$	2,623	$	68
Commercial construction and development	$	822	$	822	$	-	$	874	$	40
Consumer closed end first mortgage	$	1,869	$	1,869	$	-	$	1,328	$	-
Consumer open end and junior liens	$	-	$	-	$	-	$	193	$	-
Commercial and industrial	$	187	$	187	$	-	$	204	$	1
Total	$	3,757	$	3,757	$	100	$	5,222	$	109

97

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	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

As of December 31, 2014, there were no impaired loans with a valuation allowance.

	December 31, 2014
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	4,933	$	4,933	$	-	$	3,776	$	161
Commercial construction and development		931		1,860		-		1,323		30
Consumer closed end first mortgage		1,138		1,138		-		1,142		8
Consumer open end and junior liens		-		-				100		3
Commercial and industrial		758		789		-		923		12
Total	$	7,760	$	8,720	$	-	$	7,264	$	214

The following information presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2016 and 2015.

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.

98

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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 of 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.

99

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	December 31, 2016
	Commercial								Consumer
	Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial	$	295,548	$	3,705	$	3,297	$	27							$	302,577
Commercial construction and development		21,782		254		417		-								22,453
Consumer closed end first mortgage									$	473,329	$	-	$	5,519		478,848
Consumer open end and junior liens										70,769		-		453		71,222
Other loans
Consumer loans
Auto										18,931		-		8		18,939
Boat/RVs										141,294		-		308		141,602
Other										5,859		-		33		5,892
Commercial and industrial		128,436		2,513		154		-								131,103
	$	445,766	$	6,472	$	3,868	$	27	$	710,182	$	-	$	6,321	$	1,172,636

	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

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

Commercial Loans

Commercial real estate 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.

100

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Commercial 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 business 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 short-term 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.

Residential and Consumer

With respect to residential loans that are secured by one-to-four family residences and are primarily owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance (PMI) if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one-to-four family residences, and 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.

The following tables detail activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2016, 2015 and 2014. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses on other segments.

	December 31, 2016
	Commercial			Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	7,090		$	2,683		$	2,868		$	12,641
Provision charged (credited) to expense		457			15			378			850
Losses charged off		(274	)		(420	)		(788	)		(1,482	)
Recoveries		85			25			263			373
Balance, end of period	$	7,358		$	2,303		$	2,721		$	12,382

101

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	December 31, 2015
	Commercial			Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of year	$	7,085		$	3,471		$	2,612		$	13,168
Provision charged to expense		(389	)		(179	)		693			125
Losses charged off		(104	)		(643	)		(640	)		(1,387	)
Recoveries		498			34			203			735
Balance, end of period	$	7,090		$	2,683		$	2,868		$	12,641

	December 31, 2014
	Commercial			Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	8,148		$	3,124		$	2,140		$	13,412
Provision charged (credited) to expense		(1,273	)		888			1,235			850
Losses charged off		(289	)		(572	)		(1,021	)		(1,882	)
Recoveries		499			31			258			788
Balance, end of period	$	7,085		$	3,471		$	2,612		$	13,168

	December 31, 2016
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,258		2,303		2,721		12,282
Total allowance for loan losses	$	7,358	$	2,303	$	2,721	$	12,382
Loan balances
Individually evaluated for impairment	$	1,888	$	1,869	$	-	$	3,757
Collectively evaluated for impairment		454,245		476,979		237,655		1,168,879
Gross loans	$	456,133	$	478,848	$	237,655	$	1,172,636

	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

102

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	December 31, 2014
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		7,085		3,471		2,612		13,168
Total allowance for loan losses	$	7,085	$	3,471	$	2,612	$	13,168
Loan balances
Individually evaluated for impairment	$	6,622	$	1,138	$	-	$	7,760
Collectively evaluated for impairment		312,973		515,925		185,730		1,014,628
Gross loans	$	319,595	$	517,063	$	185,730	$	1,022,388

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 six months, is obtained. If a loan is on accrual at the time of the modification, the loan is evaluated to determine the collection of principal and interest is reasonably assured and generally stays on accrual.

At December 31, 2016 and 2015, the Company had a number of loans that were modified in troubled debt restructurings and impaired. The modification of terms of such loans included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.

103

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The following tables describe troubled debts restructured during the years ended December 31, 2016, 2015 and 2014.

	December 31, 2016
	No. of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate
Commercial		1	$	406	$	406
Commercial construction and development		1		83		83
Consumer closed end first mortgage		14		881		911
Consumer open end and junior liens		1		39		39
Consumer loans
Auto		1		4		4
Boat/RV		3		56		56
Other		2		7		7

	December 31, 2015
	No. of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate
Commercial		4	$	2,399	$	2,406
Commercial construction and development		1		155		155
Consumer closed end first mortgage		8		287		287
Consumer open end and junior liens		3		51		51
Consumer loans
Auto		2		25		25
Commercial and industrial		1		88		83

104

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	December 31, 2014
	No. of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate
Commercial		6	$	1,229	$	1,248
Consumer closed end first mortgage		12		1,493		1,139
Consumer open end and junior liens		5		58		59
Commercial and industrial		2		193		223

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

Newly restructured loans by type for the years ended December 31, 2016, 2015 and 2014 are as follows:

	December 31, 2016
	Interest Only		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	406	$	-	$	406
Commercial construction and development		-		83		-		83
Consumer closed end first mortgage		-		47		864		911
Consumer open end junior lien		-		-		39		39
Consumer Loans
Auto		-		-		4		4
Boat/RV		-		48		8		56
Other		-		7		-		7

105

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	December 31, 2015
	Interest Only		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	2,406	$	-	$	2,406
Commercial construction and development		-		-		155		155
Consumer closed end first mortgage		-		11		276		287
Consumer open end junior lien		-		51		-		51
Consumer Loans
Auto		-		25		-		25
Commercial and industrial		-		83		-		83

	December 31, 2014
	Interest Only		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	701	$	547	$	1,248
Consumer closed end first mortgage		101		-		1,038		1,139
Consumer open end junior lien		-		28		31		59
Consumer Loans
Commercial and industrial		-		223		-		223

106

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Defaults of any loans modified as troubled debt restructurings made in the years ended December 31, 2016, 2015 and 2014, respectively, are listed in the table below. Defaults are defined as any loans that become 90 days past due.

	December 31, 2016
	No. of Loans		Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage		5	$	179
Consumer Loans
Boat/RV		1		7

	December 31, 2015
	No. of Loans		Post-Modification Outstanding Recorded Balance
Real Estate
Commercial		1	$	820

	December 31, 2014
	No. of Loans		Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage		4	$	663
Consumer open end and junior liens		1		23

At December 31, 2016, the Company held residential real estate held for sale as a result of foreclosure totaling $552,000 and real estate in the process of foreclosure of $1.9 million.

Note 6: Related Party Transactions

The Bank has entered into transactions with certain directors, executive officers and significant shareholders of the Company and Bank and their affiliates or associates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features.

107

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The aggregate amount of loans, as defined, to such related parties was as follows:

	2016
Balances, January 1,	$	8,062
Change in composition		(14	)
New loans, including renewals		5,358
Payments, etc., including renewals		(6,271	)
Balances, December 31,	$	7,135

Note 7: Premises and Equipment

Major classifications of premises and equipment, stated at cost, are as follows:

	2016			2015
Cost
Land	$	8,074		$	12,393
Buildings and land improvements		19,264			26,651
Equipment		13,562			12,877
Total cost		40,900			51,921
Accumulated depreciation and amortization		(19,700	)		(20,873	)
Net	$	21,200		$	31,048

Note 8: Core Deposit and Other Intangibles

The carrying basis of recognized intangible assets at December 31, 2016 and 2015, were:

	2016		2015
Core deposits	$	200	$	444
Other intangibles		191		367
	$	391	$	811

Amortization expense for the years ended December 31, 2016, 2015 and 2014, was $420,000, $517,000 and $647,000, respectively. Estimated amortization expense for each of the next three years, which is the remaining life, is:

2017	$	264
2018		114
2019		13
	$	391

108

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 9: Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2016 and 2015 were:

	2016		2015
Balance as of January 1	$	1,800	$	1,800
Goodwill acquired during the year		-		-
Balance as of December 31	$	1,800	$	1,800

Goodwill is tested for impairment on an annual basis as of December 31, or whenever events or changes in circumstances indicate the carrying amount of goodwill exceeds its implied fair value. No events or changes in circumstances have occurred since the annual impairment test that would suggest is was more likely than not goodwill impairment existed.

Note 10: Deposits

Deposits were comprised of the following at December 31, 2016 and 2015:

	December 31,		December 31,
	2016		2015
Noninterest-bearing demand	$	178,046	$	179,542
Interest-bearing demand		292,977		267,089
Savings		136,314		131,578
Money market savings		173,305		162,551
Certificates and other time deposits of $100,000 or more		181,067		147,268
Other certificates		191,673		203,354
Total deposits	$	1,153,382	$	1,091,382

Certificates, including other time deposits of $100,000 or more, maturing in years ending December 31 are as follows:

2017	$	190,130
2018		48,689
2019		37,076
2020		58,507
2021		32,244
Thereafter		6,094
	$	372,740

109

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 11: Federal Home Loan Bank Advances

FHLB advances maturing in years ending December 31 are as follows:

2017	$	70,028
2018		39,030
2019		40,533
2020		36,500
2021		26,500
Thereafter		28,000
	$	240,591

At December 31, 2016, the Company had pledged $360,870,000 in qualifying first mortgage loans as collateral for advances and outstanding letters of credit. Advances, at interest rates from 0.60% to 6.73% at December 31, 2016, were subject to restrictions or penalties in the event of prepayment.

At December 31, 2016, the Company had a total of $15 million in putable and $40 million in symmetrical advances with Federal Home Loan Bank. The call dates for these advances range from 2019 through 2021 even though maturity dates extend beyond those dates.

Note 12: Other Borrowings

Other borrowings consisted of the following components as of December 31:

	2016		2015
Note payable	$	-	$	5,312
Subordinated debenture, net of discount		4,189		4,146
Total	$	4,189	$	9,458

The Company borrowed $7,589,000 from First Tennessee Bank, N.A. at a variable rate of LIBOR plus 2.80%, with principal and interest payments made quarterly. The loan was paid in full in November 2016.

The Company assumed $5,000,000 in debentures as the result of an acquisition of MFB Corp. in 2008. In 2005, MFB Corp. had formed MFBC Statutory Trust (MFBC), as a wholly owned business trust, to sell trust preferred securities. The proceeds from the sale of these trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from the acquired company. The junior subordinated debentures are the sole assets of MFBC and are fully and unconditionally guaranteed by the Company. The junior subordinated debentures and the trust preferred securities pay interest and dividends, respectively, on a quarterly basis. The rate resets quarterly at the prevailing three-month LIBOR rate plus 170 basis points. The Company may redeem the trust preferred securities, in whole or in part, without penalty, on or after September 15, 2010. These securities mature on September 15, 2035. The net balance of the note as of December 31, 2016 was $4,189,000 due to the fair value adjustment of the note made at the time of the acquisition.

110

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 13:Derivative Financial Instruments

The Company has certain interest rate derivative positions that are not designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Balance Sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Company enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Company agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institution offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Company’s Consolidated Statements of Income. The notional amount of customer-facing swaps as of December 31, 2016 and 2015 was approximately $14,588,000 and $4,649,000, respectively.

The following table shows the amounts of derivative financial instruments at December 31, 2016 and 2015.

	Asset Derivatives
		December 31,					December 31,
		2016		2015			2016		2015
	Balance Sheet Location	Fair Value		Fair Value		Balance Sheet Location	Fair Value		Fair Value
Derivatives not designated as hedging instruments:
Interest rate contracts	Other assets	$	553	$	336	Other liabilities	$	553	$	336

Note 14:Loan Servicing

Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of these loans consist of the following:

	2016		2015
Loans serviced for
Freddie Mac	$	301,263	$	295,613
Fannie Mae		7,355		11,535
FHLB		10,621		12,677
Other investors		1,551		1,763
	$	320,790	$	321,588

The aggregate fair value of capitalized mortgage servicing rights is based on comparable market values and expected cash flows, with impairment assessed based on portfolio characteristics including product type and interest rates. The amount of servicing fees collected during 2016, 2015 and 2014 totaled approximately $801,000, $814,000, and $832,000, respectively.

111

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	2016			2015			2014
Mortgage-servicing rights
Balances, January 1	$	1,335		$	1,417		$	1,858
Servicing rights capitalized		482			458			278
Amortization of servicing rights		(466	)		(540	)		(719	)
	$	1,351		$	1,335		$	1,417

The fair value of servicing rights subsequently measured using the amortization method was as follows:

	2016		2015		2014
Mortgage-servicing rights
Fair value, beginning of period	$	2,179	$	2,048	$	2,106
Fair value, end of period		2,110		2,179		2,048

Note 15:Income Tax

The provision for income taxes includes these components:

	2016		2015		2014
Income tax expense
Currently payable
Federal	$	2,849	$	2,652	$	2,779
State		-		-		-
Deferred
Federal		1,317		1,706		867
State		220		220		220
Total income tax expense	$	4,386	$	4,578	$	3,866

112

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

A reconciliation of income tax expense at the federal statutory rate to actual tax expense is shown below:

	2016			2015			2014
Federal statutory income tax at 34%	$	5,993		$	5,721		$	4,897
Other than temporary impairment		-			-			(615	)
Non tax captive insurance income		(319	)		-			-
State taxes		145			145			145
Low income housing credits		(96	)		(96	)		(107	)
Tax-exempt income		(1,404	)		(1,111	)		(818	)
Other		67			(81	)		364
Actual tax expense	$	4,386		$	4,578		$	3,866
Effective tax rate		24.88	%		27.21	%		25.93	%

The components of the deferred asset included on the consolidated balance sheets were as follows:

	2016			2015
Assets
Allowance for loan losses	$	4,999		$	5,091
Deferred compensation		3,174			3,193
Business tax and AMT credit carryovers		4,100			4,776
Capital loss carryover		-			102
Net operating loss carryover		1,496			1,845
Goodwill impairment		1,780			2,188
Purchase accounting adjustments		1,010			1,060
Other-than-temporary-impairment, available for sale securities		37			37
Unrealized loss on securities available for sale		776			-
Other		857			1,275
Total assets		18,229			19,567
Liabilities
Unrealized gain on securities available for sale	$	-		$	(720	)
Depreciation and amortization		(504	)		(465	)
FHLB stock		(385	)		(358	)
State income tax		(551	)		(585	)
Loan fees		(355	)		(298	)
Investments in limited partnerships		(2,072	)		(2,255	)
Mortgage servicing rights		(564	)		(572	)
Other		(972	)		(1,010	)
Total liabilities		(5,403	)		(6,263	)
Valuation Allowance
Beginning balance		(1,220	)		(1,220	)
Decrease during period		431			-
Ending balance		(789	)		(1,220	)
Net deferred tax asset	$	12,037		$	12,084

113

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The Company has unused business income tax credits of $2,749,000 that will begin to expire in 2028 and a state net operating loss of $23,011,000 that will begin to expire in 2023. In addition, the Company has an AMT credit carryover of $1,351,000 with an unlimited carryover period. Management believes that the Company will be able to utilize the benefits recorded for the state loss carryforwards and federal credits within the allotted time periods, except for the amount represented by the valuation allowance. The valuation allowance has been recorded for the possible inability to use a portion of the state net operating loss carryover.

Retained earnings include approximately $14,743,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions as of December 31, 1987 for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which income would be subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amounts was approximately $5,013,000.

The Company’s federal and state income tax returns have been closed without audit by the IRS through the year ended December 31, 2012.

Note 16:Accumulated Other Comprehensive Income (Loss)

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

	2016			2015
Net unrealized gain (loss) on securities available for sale	$	(1,009	)	$	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		(866	)		(905	)
Net unrealized loss on derivative used for cash flow hedges		-			(1	)
Net unrealized gain (loss) relating to defined benefit plan liability		30			(32	)
		(1,845	)		2,373
Tax expense		(591	)		883
Net of tax amount	$	(1,254	)	$	1,490

114

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The following table presents the reclassification adjustments out of accumulated other comprehensive income (loss) that were included in net income in the Consolidated Statement of Income for the years ended December 31, 2016, 2015 and 2014.

	Amount Reclassified from Accumulated Other Comprehensive Income For the Year Ended December 31,
Details about Accumulated Other Comprehensive Income Components	2016			2015			2014			Affected Line Item in the Statements of Income
Unrealized gains on available for sale securities
Realized securities gains reclassified into income	$	1,023		$	436		$	313		Net realized gains on sale of available for sale securities
Related income tax expense		(348	)		(148	)		(106	)	Income tax expense
Total reclassifications for the period, net of tax	$	675		$	288		$	207

Note 17:Commitments and Contingent Liabilities

In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated statements of financial condition.

Financial instruments whose contract amount represents credit risk as of December 31:

	2016		2015
Loan commitments	$	224,900	$	228,548
Standby letters of credit		2,541		2,464

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation. Collateral held varies, but may include residential real estate, income-producing commercial properties, or other assets of the borrower.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

The Company and Bank are also subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position of the Company.

115

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The Company has entered into employment agreements with certain officers that provide for the continuation of salary and certain benefits for a specified period of time under certain conditions. Under the terms of the agreement, these payments could occur in the event of a change in control of the Company.

Mortgage loans in the process of origination represent amounts that the Company plans to fund within a normal period of 60 to 90 days, and which are primarily intended for sale to investors in the secondary market. Total mortgage loans in the process of origination amounted to $4,396,000 and $6,457,000, and mortgage loans held for sale amounted to $4,063,000 and $5,991,000, at December 31, 2016 and 2015, respectively.

Note 18:Stockholders’ Equity

Without prior approval, current regulations allow the Bank to pay dividends to the Company not exceeding retained net income for the previous two calendar years and the current year. In the event the Bank becomes unable to pay dividends to the Company, the Company may not be able to service its debt, pay its other obligations or pay dividends on its common stock. At December 31, 2016, the Bank was able to pay dividends without prior regulatory approval.

Note 19:Regulatory Capital

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 December 31, 2016 and 2015, 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).

116

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The Company’s and Bank’s actual capital amounts and ratios are presented in the table below.

	December 31, 2016
	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	$	138,971		9.0	%	$	61,914		4.0	%		N/A		N/A
MutualBank		136,301		8.8			61,832		4.0		$	77,290		5.0	%
Common Equity Tier 1 Capital Level (2) :
MutualFirst Consolidated	$	136,606		11.9	%	$	51,729		4.5	%		N/A		N/A
MutualBank		136,301		11.9			51,696		4.5		$	74,672		6.5	%
Tier 1 Risk-Based Capital Level (3) :
MutualFirst Consolidated	$	138,971		12.1	%	$	68,973		6.0	%		N/A		N/A
MutualBank		136,301		11.9			68,928		6.0		$	91,904		8.0	%
Total Risk-Based Capital Level (4) :
MutualFirst Consolidated	$	151,353		13.2	%	$	91,963		8.0	%		N/A		N/A
MutualBank		148,683		12.9			91,904		8.0		$	114,880		10.0	%

⁽¹⁾ Tier 1 Capital to Average Total Assets of $1.5 billion for the Bank and Company at December 31, 2016.

⁽²⁾ Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at December 31, 2016.

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

⁽⁴⁾ Total Capital to Risk-Weighted Assets.

117

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	December 31, 2015
	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	$	132,727		9.1	%	$	58,608		4.0	%		N/A		N/A
MutualBank		134,754		9.2			58,509		4.0		$	73,136		5.0	%
Common Equity Tier 1 Capital Level (2) :
MutualFirst Consolidated	$	131,520		12.5	%	$	47,331		4.5	%		N/A		N/A
MutualBank		134,754		12.8			47,309		4.5		$	68,336		6.5	%
Tier 1 Risk-Based Capital Level (2) :
MutualFirst Consolidated	$	132,727		12.6	%	$	63,108		6.0	%		N/A		N/A
MutualBank		134,754		12.8			63,079		6.0		$	84,106		8.0	%
Total Risk-Based Capital Level (3) :
MutualFirst Consolidated	$	145,368		13.8	%	$	84,144		8.0	%		N/A		N/A
MutualBank		147,395		14.0			84,106		8.0		$	105,132		10.0	%

⁽¹⁾ Tier 1 Capital to Average Total Assets of $1.5 billion for the Bank and Company at December 31, 2015.

⁽²⁾ Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at December 31, 2015.

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

⁽⁴⁾ Total Capital to Risk-Weighted Assets.

The above minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. The capital conservation buffer is being phased in annually, which started January 1, 2016, at the rate of 0.625% per year until fully phased in during 2019. The capital conversation buffer was 0.625% at December 31, 2016. The unrealized gain or loss on available-for—sale securities is not included in computing regulatory capital. As of December 31, 2016, the Bank is in excess of the capital conversation buffer requirements.

Note 20:Employee Benefits

The Company has a retirement savings 401(k) plan in which substantially all employees may participate. The contributions are discretionary and determined annually. The Company matches employees' contributions at the following rates: 100 percent of participant contributions up to 4% and 50 percent of participant contributions from 5-6%, not to exceed a maximum of 5% of their compensation. The Company’s expense for the plan was $938,000, $810,000 and $739,000 for 2016, 2015 and 2014, respectively.

The Company has an executive benefit plan and deferred compensation arrangements for the benefit of certain officers. The Company also has deferred compensation arrangements with certain directors whereby, in lieu of previously receiving fees, the directors or their beneficiaries will be paid benefits for an established period following the director’s retirement or death. These arrangements are informally funded by life insurance contracts which have been purchased by the Company. The Company records a liability for these vested benefits based on the present value of future payments. The Company’s expense for the plan was $676,000, $669,000 and $730,000 for 2016, 2015 and 2014, respectively.

The Company has an ESOP covering substantially all of its employees. During 2013, the ESOP reached maturity and the last of the shares were allocated in early 2014. At December 31, 2016 and 2015, the Company had no unearned ESOP shares. Shares were released to participants proportionately as ESOP debt was repaid. The following table provides information on ESOP shares at December 31:

	2016		2015		2014
Allocated shares		403,649		417,848		417,848

118

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 21:Stock Option Plans

Under the Company’s stock option plans, which are accounted for in accordance with FASB ASC 718, Stock Compensation, the Company grants selected executives and other key employees and directors incentive and non-qualified stock option awards that vest and become fully exercisable at the discretion of the Compensation Committee as the options are granted. As of the end of the 2016, the Company is authorized to grant options under our stock option plan approved in 2008. Under certain provisions of the plan, the number of shares available for grant may be increased without shareholder approval by the amount of shares surrendered as payment of the exercise price of the stock option and by the number of shares of common stock of the Company that could be repurchased by the Company using proceeds from the exercise of stock options.

The Company had a stock option plan that was approved in 2000 that expired in 2015. Under the plan provisions, all option grants that have not been exercised or expired are still exercisable until the maturity or the participant forfeits the grant. No additional grants of options can be made from this plan.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate timing of option exercises and employee terminations within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted represents the period of time that options are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The discount rate for post-vesting restrictions is estimated based on the Company’s credit-adjusted risk-free rate of return.

The following is a summary of the status of the Company’s stock option plans and changes in these plans during 2016.

	2016
Options	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding, beginning of year		382,161	$	10.45
Exercised		77,600		12.58
Outstanding and exercisable, end of year		304,561	$	9.90		7.4 years	$	7,064

119

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

There were 77,600, 186,059 and 118,823 options exercised during the years ended December 31, 2016, 2015 and 2014. There were no options granted during those periods. The Company will fulfill options with authorized but unissued shares of stock from the 352,741 shares the Company has authorized under the current shareholder-approved stock option and incentive plans. There were 58,003 shares remaining to be granted under the current plan. The Company will also fulfill options with authorized but unissued shares of stock from the 141,462 shares the Company has authorized under the 2000 stock option plan. Outstanding options may continue to be exercised from that plan; however no further grants can be made.

Cash received from options exercised under all share-based payment arrangements for years ended December 31, 2016, 2015 and 2014 was $976,000, $2.0 million and $1.3 million, respectively. The intrinsic value on options exercised during the years ended December 31, 2016, 2015 and 2014 was $911,000, $2.2 million and $1.0 million, respectively.

120

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 22:Earnings Per Share

Earnings per share were computed as follows:

	2016
	Income		Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income available to common stockholders	$	13,241		7,391,681	$	1.79
Effect of Dilutive Securities
Stock options		-		147,157
Diluted Earnings Per Share
Net income available to common stockholders and assumed conversions	$	13,241		7,538,838	$	1.76

	2015
	Income		Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income available to common stockholders	$	12,262		7,374,589	$	1.66
Effect of Dilutive Securities
Stock options		-		173,296
Diluted Earnings Per Share
Net income available to common stockholders and assumed conversions	$	12,262		7,547,885	$	1.62

	2014
	Income		Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income available to common stockholders	$	11,046		7,160,700	$	1.54
Effect of Dilutive Securities
Stock options		-		231,131
Diluted Earnings Per Share
Net income available to common stockholders and assumed conversions	$	11,046		7,391,831	$	1.49

Options to purchase 37,161 and 44,161 shares of common stock were outstanding at December 31, 2015 and 2014, respectively, but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares. As of December 31, 2016, the exercise price for all options was lower than the average market price of the common shares.

121

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 23: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. 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, 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 at fair value on a recurring basis and level within the ASC 820 fair value hierarchy in which the fair value measurements fall:

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2016
Mortgage-backed securities	$	92,517	$	-	$	92,517	$	-
Collateralized mortgage obligations		68,047		-		68,047		-
Municipal obligations		77,682		-		77,682		-
Corporate obligations		11,667		-		9,079		2,588
Available for sale securities	$	249,913	$	-	$	247,325	$	2,588

122

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

			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 years ended December 31, 2016, 2015 and 2014 of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

	2016		2015		2014
Beginning balance	$	2,534	$	2,522	$	3,336
Total realized and unrealized gains (losses)
Included in net income		-		-		(68	)
Included in other comprehensive income (loss)		54		12		2,098
Sales		-		-		(2,826	)
Settlements		-		-		(18	)
Ending balance	$	2,588	$	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	$	0	$	0	$	0

123

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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.

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.

Other Real Estate Owned

The fair value of real estate is generally determined based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis.

Other real estate owned is classified within Level 3 of the fair value hierarchy.

124

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall:

			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.

December 31, 2016	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,588	Discounted cash flow	Discount rate		7.0 - 8.0	%
				Constant prepayment rate		2.0	%
				Cumulative projected prepayments		40.0	%
				Probability of default		1.7 - 2.2	%
				Projected cures given deferral		0 - 15.0	%
				Loss severity		32.5 - 38.7	%

125

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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:

126

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

					Fair Value Measurements Using
December 31, 2016	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	26,860	$	25,795	$	25,795	$	-	$	-
Interest-bearing time deposits		993		993		993
Loans held for sale		4,063		4,094		-		4,094		-
Loans, net		1,157,120		1,139,450		-		-		1,139,450
FHLB stock		10,925		10,925		-		10,925		-
Interest receivable		4,629		4,629		-		4,629		-
Liabilities
Deposits		1,153,382		1,152,030		779,577		-		372,453
FHLB advances		240,591		239,866		-		239,866		-
Other borrowings		4,189		4,189		-		4,189		-
Interest payable		350		350		-		350		-

127

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

					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 24: Condensed Financial Information (Parent Company Only)

Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company:

Condensed Balance Sheets

	2016		2015
Assets
Cash on deposit with Bank	$	1,098	$	2,732
Cash on deposit with others		24		24
Total cash		1,122		2,756
Investment in common stock of subsidiaries		142,812		143,459
Deferred tax		146		214
Other assets		265		262
Total assets	$	144,345	$	146,691
Liabilities
Other borrowings	$	4,189	$	9,458
Other liabilities		118		208
Total liabilities		4,307		9,666
Stockholders' Equity		140,038		137,025
Total liabilities and stockholders' equity	$	144,345	$	146,691

128

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Condensed Statements of Income

	2016			2015			2014
Income
Interest income from bank	$	-		$	1		$	1
Dividends from subsidiaries		12,000			3,600			3,500
Total income		12,000			3,601			3,501
Expenses		976			1,182			994
Income before income tax and equity in undistributed income of subsidiaries		11,024			2,419			2,507
Income tax benefit		(399	)		(591	)		(337	)
Income before equity in undistributed income (distributions in excess of income) of subsidiaries		11,423			3,010			2,844
Equity in undistributed income (distributions in excess of income) of subsidiaries		1,818			9,252			8,202
Net Income Available to Common Shareholders	$	13,241		$	12,262		$	11,046

Condensed Statements of Comprehensive Income

	2016			2015			2014
Net income	$	13,241		$	12,262		$	11,046
Other comprehensive income:
Net unrealized holding gain (loss) on securities available for sale		(3,297	)		(1,186	)		8,921
Net unrealized gain on securities available for sale for which a portion of an other-than-temporary impairment has been recognized in income		39			12			381
Less: Reclassification adjustment for realized gains included in net income		(1,023	)		(436	)		(313	)
Net unrealized gain on derivative used for cash flow hedges		1			108			150
Net unrealized gain (loss) relating to defined benefit plan		62			77			(209	)
		(4,218	)		(1,425	)		8,930
Income tax (expense) benefit related to other comprehensive income		1,474			537			(3,137	)
Other comprehensive income (loss)		(2,744	)		(888	)		5,793
Comprehensive income	$	10,497		$	11,374		$	16,839

129

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Condensed Statements of Cash Flows

	2016			2015			2014
Operating Activities
Net income	$	13,241		$	12,262		$	11,046
Item not requiring cash
Deferred income tax benefit		200			(102	)		159
(Equity in undistributed income) distributions in excess of income of subsidiaries		(1,818	)		(9,252	)		(8,202	)
Other		(183	)		13			19
Net cash provided by operating activities		11,440			2,921			3,022
Investing Activity
Investment in subsidiary		(100	)		(250	)		-
Net cash used in investing activity		(100	)		(250	)		-
Financing Activities
Repayment of other borrowings	$	(5,312	)	$	(759	)	$	(759	)
Stock repurchased		(4,354	)		-			-
Cash dividends		(4,284	)		(3,550	)		(2,297	)
Proceeds from stock options exercised		976			2,011			1,347
Net cash used in financing activities		(12,974	)		(2,298	)		(1,709	)
Net Change in Cash		(1,634	)		373			1,313
Cash, Beginning of Year		2,756			2,383			1,070
Cash, End of Year	$	1,122		$	2,756		$	2,383

130

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 25: Quarterly Results of Operations (Unaudited)

Quarter Ended	Interest Income		Interest Expense		Net Interest Income		Provision for Loan Losses		Net Income Available to Common Shareholders		Basic Earnings Per Common Share		Diluted Earnings Per Common Share
2016
March 31	$	13,034	$	2,272	$	10,762	$	200	$	2,365	$	0.32	$	0.31
June 30		13,258		2,271		10,987		150		4,157		0.56		0.55
September 30		13,567		2,330		11,237		250		3,482		0.48		0.47
December 31		13,943		2,374		11,569		250		3,237		0.44		0.43
Total	$	53,802	$	9,247	$	44,555	$	850	$	13,241	$	1.79	$	1.76
2015
March 31	$	12,683	$	2,165	$	10,518	$	-	$	2,481	$	0.34	$	0.33
June 30		12,731		2,191		10,540		-		3,218		0.44		0.43
September 30		13,049		2,233		10,816		-		3,225		0.44		0.43
December 31		13,313		2,214		11,099		125		3,338		0.45		0.44
Total	$	51,776	$	8,803	$	42,973	$	125	$	12,262	$	1.66	$	1.62
2014
March 31	$	12,738	$	2,319	$	10,419	$	350	$	2,020	$	0.28	$	0.27
June 30		12,744		2,186		10,558		500		2,614		0.37		0.36
September 30		12,803		2,163		10,640		-		2,751		0.38		0.37
December 31		12,893		2,255		10,638		-		3,661		0.51		0.49
Total	$	51,178	$	8,923	$	42,255	$	850	$	11,046	$	1.54	$	1.49

131

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (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 December 31, 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 December 31, 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.

Management’s Report on Internal Control over Financial Reporting

The management of MutualFirst Financial, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

132

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on our assessment, we believe that, as of December 31, 2015, the Company’s internal control over financial reporting was effective based on those criteria.

Date: March 16, 2017	By:	/s/David W. Heeter
		David W. Heeter
		President and Chief Executive Officer
	By:	/s/Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and Chief Financial Officer

133

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

MutualFirst Financial, Inc.

Muncie, Indiana

We have audited MutualFirst Financial, Inc.'s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, MutualFirst Financial, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of MutualFirst Financial, Inc. and our report dated March 16, 2017, expressed an unqualified opinion thereon.

/s/ BKD, LLP

Indianapolis, Indiana

March 16, 2017

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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 December 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors

Information concerning the Company’s directors is incorporated herein by reference from the Company’s definitive proxy statement for its Annual Meeting of Stockholders to be held in May 2017, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

Executive Officers

Information concerning the executive officers of the Company who are directors is incorporated herein by reference from the Company’s definitive proxy statement for its Annual Meeting of Stockholders to be held in May 2017, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

The business experience of each of our other current executive officers for at least the past five years is set forth below.

Christopher D. Cook. Age 43 years. Mr. Cook, a certified public accountant, has served as Senior Vice President, Treasurer and Chief Financial Officer of MutualFirst and MutualBank since May 2010.  Mr. Cook began his career with MutualBank in 1996. Since that time he has served as Profitability Analyst, Assistant Treasurer, Controller and Director of Finance.

Sharon L. Ferguson.  Age 61 years.  Ms. Ferguson has served as Senior Vice President of Risk Management of the Bank since February 2009.  From April 2008 until February 2009, she served as Senior Vice President of Consumer Banking.  From September 2007 to April 2008 she served as Vice President of Retail Products. From October 2005 until September 2007 she served as Assistant Vice President, Retail Products Manager. Prior to October 2005 she served as Assistant Vice President, Consumer Lending and Deposits Manager. She has been with the Bank since March 1998.

Christopher L. Caldwell. Age 51 years. Mr. Caldwell has served as Senior Vice President of Business Banking of MutualBank since December 2012.  Beginning in 2008, he served as Vice President/Senior Business Banker for the Central Region of MutualBank.  From 2006 to 2008, he served as Regional Head of Commercial Lending for Delaware and Randolph counties.  Prior to that he was Vice President of Commercial Lending.  Mr. Caldwell is a graduate of the ABA Stonier Graduate School of Banking and serves as Secretary of the MutualBank Charitable Foundation. He has been with the Bank since 2005.

Audit Committee Matters and Audit Committee Financial Expert

The Board of Directors of the Company has a standing Audit/Compliance Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of that committee are Directors Linn A. Crull (Chairman), Wilbur R. Davis, Jerry D. McVicker and Edward J. Levy, all of whom are considered independent under applicable Nasdaq listing standards. The Board of Directors has determined that Mr. Crull and Mr. Levy are each considered to be an “audit committee financial expert” as defined in applicable SEC rules. Additional information concerning the audit committee of the Company’s Board of Directors is incorporated herein by reference from the Company’s definitive proxy statement for its Annual Meeting of Stockholders to be held in May 2017, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

135

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the SEC reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge, based solely on its review of the Section 16 reports filed by its directors and executive officers and written representations from those directors and executive officers, all Section 16(a) filing requirements applicable to the Company’s executive officers and directors during the fiscal year ended December 31, 2016, were met.

Code of Ethics

The Company adopted a written Code of Ethics based upon the standards set forth under Item 406 of Regulation S-K of the Securities Exchange Act. The Code of Ethics applies to all of the Company’s directors, officers and employees. A copy of the Company’s Code of Ethics was filed with the SEC as Exhibit 14 to the Annual Report on Form 10-K for the year ended December 31, 2003. You may obtain a copy of the Code of Ethics on our website at www.bankwithmutual.com at “About Us – Investor Relations – Corporate Overview - Governance Documents - Code of Ethics,” or free of charge from the Company by writing to our Corporate Secretary at MutualFirst Financial, Inc., 110 E. Charles Street, Muncie, Indiana 47305-2400 or by calling (765) 747-2800.

Nomination Procedures

There have been no material changes to the procedures by which stockholders may recommend nominees to the Company’s Board of Directors.

Item 11. Executive Compensation

Information concerning executive compensation is incorporated herein by reference from the Company’s definitive proxy statement for its Annual Meeting of Stockholders to be held in May 2017, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the Company’s definitive proxy statement for its Annual Meeting of Stockholders to be held in May 2016, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

136

Equity Compensation Plan Information. The following table summarizes our equity compensation plans as of December 31, 2016.  

Plan Category	Number of securities to be  issued upon exercise of outstanding options,  warrants and rights		Weighted-average exercise price of outstanding options warrants and rights		Number of securities remaining available for future issuance under equity compensation plan
Equity compensation plans approved by security holders		304,561	$	9.90		58,003	(1)
Equity compensation plans not approved by security holders		-		-		-

(1) These shares are available for future grants under the Company’s 2008 stock option plan.

Item 13. Certain Relationships and Related Transactions

Information required by this item concerning certain relationships and related transactions, our independent directors and our audit and nominating committee charters is incorporated herein by reference from the Company’s definitive proxy statement for its Annual Meeting of Stockholders to be held in May 2017, which will be filed no later than 120 days after the close of the fiscal year.

Item 14. Principal Accountant Fees and Services

Information required by this item concerning principal accountant fees and services is incorporated herein by reference from the Company’s definitive proxy statement for its Annual Meeting of Stockholders to be held in May 2017, a copy of which will be filed with the SEC not later than 120 days after the close of the fiscal year.

137

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) List of Financial Statements

The following are contained in Item 8 of this Form 10-K:

Annual Report Section

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2016 and 2015

Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014

Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014

Notes to Consolidated Financial Statements, December 31, 2016, 2015 and 2014

(a)(2) Financial Statement Schedules:

All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable.

(a)(3) 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

138

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 2016	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
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-K for the year ended December 31, 2016, formatted in Extensive Business Reporting Language (XBRL); (i) Consolidated Condensed Balance Sheets as of December 31, 2016 and 2015; (ii) Consolidated Condensed Statements of Income for the Years Ended December 31, 2016, 2015 and 2014; (iii) Consolidated Condensed Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014; (iv) Consolidated Condensed Statement of Stockholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014 (v) Consolidated Condensed Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014; and (vi) Notes to Consolidated Financial Statements, December 31, 2016, 2015 and 2014, 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

139

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 16, 2017 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 16, 2017 and incorporated herein by reference.
g	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 16, 2017 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, 2017 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

140

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		MutualFirst Financial, Inc.
Date: March 16, 2017	By:	/s/David W. Heeter
		David W. Heeter, President and Chief Executive Officer
		(Duly Authorized Representative)

POWER OF ATTORNEY

We, the undersigned officers and directors of MutualFirst Financial, Inc., hereby severally and individually constitute and appoint David W. Heeter the true and lawful attorneys and agents of each of us to execute in the name, place and stead of each of us (individually and in any capacity stated below) any and all amendments to this Annual Report on Form 10-K and all instruments necessary or advisable in connection therewith and to file the same with the Securities and Exchange Commission, each of said attorneys and agents to have the power to act with or without the others and to have full power and authority to do and perform in the name and on behalf of each of the undersigned every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any of the undersigned might or could do in person, and we hereby ratify and confirm our signatures as they may be signed by our said attorneys and agents or each of them to any and all such amendments and instruments. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/David W. Heeter	/s/Wilbur R. Davis
David W. Heeter, President and Director	Wilbur R. Davis, Chairman of the Board
(Principal Executive Officer)	Date: March 16, 2017
Date: March 16, 2017
/s/Patrick C. Botts	/s/Linn A. Crull
Patrick C. Botts, Director	Linn A. Crull, Director
Date: March 16, 2017	Date: March 16, 2017
/s/James D. Rosema	/s/William V. Hughes
James D. Rosema, Director	William V. Hughes, Director
Date: March 16, 2017	Date: March 16, 2017
/s/Jerry D. McVicker	/s/James R. Schrecongost
Jerry D. McVicker, Director	James R. Schrecongost, Director
Date: March 16, 2017	Date: March 16, 2017
/s/Edward C. Levy	/s/Michael J. Marien
Edward C. Levy, Director	Michael J. Marien, Director
Date: March 16, 2017	Date: March 16, 2017
/s/Charles J. Viater	/s/Christopher D. Cook
Charles J. Viater, Director	Christopher D. Cook, Senior Vice President
Date: March 16, 2017	Treasurer and Chief Financial Officer
	(Principal Financial and Accounting Officer)
	Date: March 16, 2017

141

INDEX TO EXHIBITS

Number	Description
10.3	Form of Supplemental Retirement Plan Income Agreements for Patrick C. Botts and David W. Heeter
10.5	Form of Director Shareholder Benefit Program Agreement, as amended, for Jerry D. McVicker
10.6	Form of Director Shareholder Benefit Program Agreement, as amended, for Jerry D. McVicker
10.9	Director Fee Arrangements for 2016
10.10	Director Deferred Compensation Plan
10.15	Salary Continuation Agreement with Charles J. Viater
21	Subsidiaries of the Registrant
23	Consent of Accountants
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

142

EX-10.3

Exhibit 10.3

RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT

INCOME AGREEMENT FOR

PATRICK C. BOTTS

This Restated Executive Supplemental Retirement Income Agreement (the "Agreement"), effective as of the 19th day of December 2016, amends and restates the Executive Supplemental Retirement Income Agreement (as originally entered into on November 15, 1996 and as most recently amended and restated on April 1, 2015) and formalizes the understanding by and between MUTUALBANK (the "Bank"), an Indiana commercial bank, and PATRICK C. BOTTS referred to as "Executive."

ARTICLE I.

DEFINITIONS

When used herein, the following words and phrases shall have the meanings below unless the context clearly indicates otherwise:

Section 1.01     "Act" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

Section 1.02     "Bank" means MutualBank and any successor thereto.

Section 1.03     "Beneficiary" means the person or persons (and their heirs) designated as Beneficiary in Exhibit B of this Agreement to whom the deceased Executive's benefits are payable. If no Beneficiary is so designated, then the Executive's Spouse, if living, will be deemed the Beneficiary. If the Executive's Spouse is not living, then the Children of the Executive will be deemed the Beneficiaries and will take on a per stirpes basis. If there are no Children, then the Estate of the Executive will be deemed the Beneficiary.

Section 1.04     "Board of Directors" means the board of directors of the Bank.

Section 1.05     "Change in Control" means 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.

1

Section 1.06     "Children" means all natural or adopted children of the Executive, and issue of any predeceased child or children.

Section 1.07     "Code" means the Internal Revenue Code of 1986, as amended from time to time.

Section 1.08     “Company” means MutualFirst Financial, Inc., a Maryland corporation and the sole stockholder of the Bank.

Section 1.09     "Contributions" means those annual contributions which the Bank is required to make in the amounts set forth in Exhibit A. The Bank shall pay Contributions to the Executive within the tax year that the Executive owes taxes for such Contributions under the Agreement.

Section 1.10     "Effective Date" of this Agreement as amended and restated shall be the date first written above.

Section 1.11     "Estate" means the estate of the Executive.

Section 1.12     "Interest Factor" means monthly discounting at a rate set forth in Exhibit A.

Section 1.13      "Plan Administrator" or "Administrator" shall mean the Bank.

Section 1.14      "Plan Year" shall mean the 12-month period commencing on January 1^st and each consecutive 12-month period thereafter.

Section 1.15     "Spouse" means the individual to whom the Executive is legally married at the time of the Executive's death.

Section 1.16     "Termination of Employment" means a cessation or reduction in the Executive’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), for any reason other than death. Whether a Termination of Employment has occurred is determined based on whether the facts and circumstances indicate that the Bank and the Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Executive would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period.

BENEFITS—GENERALLY

Section 2.01   Payment Upon a Change in Control.   If a Change in Control occurs, followed within 36 months by either (i) the Executive's   involuntary Termination of Employment, or (ii) a termination by the Executive as a result of any of the following: (a) a material diminution of or interference with the Executive’s duties, titles, responsibilities and benefits as President and Chief Operating Officer of the Bank and Executive Vice President of the Company, (b) a change in the principal workplace of the Executive to a location outside of a 30 mile radius from the Bank’s headquarters office as of the date hereof, (c) a material reduction in the number or seniority of other Bank personnel reporting to the Executive 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 Executive, other than as part of a Bank-or Company-wide reduction in staff, (d) a material reduction in the Executive’s salary or a material adverse change in the Executive’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 (e) a material permanent increase in the required hours of work or the workload of the Executive; provided, however, that before the Executive terminates his employment pursuant to clause (ii) above, the Executive must first provide written notice to the Bank and the Company within ninety (90) days of the initial existence of the condition, describing the existence of such condition, and the Bank and the Company shall thereafter have the right to remedy the condition within thirty (30) days of the date they received the written notice from the Executive. If the Bank and the Company remedy the condition within such thirty (30) day cure period, then the Executive shall not have the right to terminate his employment as the result of such event. If the Bank and the Company do not remedy the condition within such thirty (30) day cure period, then the Executive 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 Bank shall be required to make a final Contribution to the Executive within ten days of the Termination of Employment, subject to Section 2.07 below.   The amount of such final Contribution shall be equal to the present value (computed using a discount rate equal to the Interest Factor) of all remaining Contributions which would have been required to be made on behalf of the Executive if the Executive had remained in the employ of the Bank.

2

Section 2.02   Termination for Cause.   If the Executive is terminated for Cause, no further Contributions shall be required of the Bank, and if not yet made, no Contribution shall be required for the Plan Year in which such Termination of Employment for Cause occurs.

Section 2.03   Voluntary Termination of Employment. If the Executive's employment with the Bank is voluntarily terminated for any reason other than a termination for Cause or a termination following a Change in Control, the Executive shall not be entitled to any Contributions attributable to any Plan Years which commence subsequent to the date of termination.

Section 2.04   Involuntary Termination of Employment. If the Executive's employment with the Bank is involuntarily terminated for any reason, excluding termination for Cause or termination following a Change in Control, the Bank shall be required to make a final Contribution to the Executive within ten days of the Termination of Employment, subject to Section 2.07 below.   The amount of such final Contribution shall be an amount equal to: (i) the full Contribution required for the Plan Year in which such voluntary termination occurs, if not yet made, plus (ii) the present value (computed using a discount rate equal to the Interest Factor) of the lesser of (A) the next five years Contributions to the Executive or (B) all remaining Contributions to the Executive.

Section 2.05   Death During Employment. If the Executive dies while employed by the Bank prior to payment of all remaining Contributions, the Bank shall be required to make a Contribution to the Beneficiaries equal to the sum of the remaining Contributions set forth in Exhibit A, reduced by any payment to the Beneficiaries under any life insurance policies that may have been obtained on the Executive's life with premiums paid by the Bank. Such final Contributions shall be payable in a lump sum within ten days of the Executive's death.

Section 2.06   Additional Death Benefit - Burial Expense. In addition to the above-described death benefits, upon the Executive’s death, the Executive's Beneficiary shall be entitled to receive a one-time lump sum death benefit in the amount of Thirty Thousand ($30,000.00) Dollars. The Executive's Beneficiary shall not be entitled to such benefit if the Executive is terminated for Cause prior to death.

Section 2.07   Restriction on Timing of Contributions. If (a) the Contributions payable under Section 2.01 or Section 2.04 above are deemed to be deferred compensation and are not exempt from Section 409A of the Code pursuant to either the short-term deferral exemption in Treasury Regulation §1.409A-1(b)(4) or the separation pay plan exemption in Treasury Regulation §1.409A-1(b)(9), and (b) the Executive is a “Specified Employee” (as defined in Section 409A of the Code) at the time of his Termination of Employment, then such Contributions shall not be paid until (y) the later of the 185th day following the Executive’s Termination of Employment or the 18-month anniversary of the Effective Date, or (z) if the Executive dies prior to the time specified in clause (y), the date of his earlier death (the “Delayed Distribution Date”). Any payments deferred on account of the preceding sentence shall be accumulated without interest and paid on the Delayed Distribution Date 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 Section 2.01 or Section 2.04 which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation.

3

ARTICLE III.

NON-COMPETITION

Section 3.01   Non-Competition. In consideration of the agreements of the Bank contained herein and of the payments to be made by the Bank pursuant hereto, the Executive hereby agrees that, for as long as he remains employed by the Bank, he will devote substantially all of his time, skill, diligence and attention to the business of the Bank, and will not actively engage, either directly or indirectly, in any business or other activity which is, or may be deemed to be, in any way competitive with or adverse to the best interests of the business of the Bank. The Executive further agrees that following his employment with the Bank and continuing until all Contributions payable under this Agreement have been paid, he will not actively engage, either directly or indirectly, in any business or other activity which is, or may be deemed to be, in any way competitive with or adverse to the best interests of the Bank, unless the Executive has the prior express written consent of the Board of Directors of the Bank.

Section 3.02   Breach of Non-Competition Clause.

a.          During Employment.   In the event the Executive breaches Section 3.01 while employed at the Bank, all further Contributions to the Executive shall immediately cease, and all benefits under this Agreement, other than those which can be paid from previous Contributions to the Executive, shall be forfeited.

In the event (i) any breach by the Executive of the agreements and covenants described in Section 3.01 occurs while the Executive is employed at the Bank, and (ii) the Executive's employment with the Bank is terminated due to such breach, such Termination of Employment shall be deemed to be for Cause and, as set forth in Section 2.02 of this Agreement, the Executive shall have no right to receive additional compensation or other benefits pursuant to this Agreement.

b.          Breach Following Termination of Employment. In the event the Executive breaches Section 3.01 following the Executive's Termination of Employment with the Bank, all benefits under this Agreement which have not been paid to the Executive shall be forfeited.

In the event of a Termination of Employment related to a Change in Control as described in Section 2.01, Section 3.01 shall cease to be a condition to the performance by the Bank of its obligations under this Agreement.

ARTICLE IV.

BENEFICIARY DESIGNATION

The Executive shall make or re-confirm his designation of primary and secondary Beneficiaries upon execution of this Agreement and shall have the right to change such designation, at any subsequent time, by submitting to the Administrator, in substantially the form attached as Exhibit B, a written designation of primary and secondary Beneficiaries. Any Beneficiary designation made subsequent to execution of this Agreement shall become effective only when receipt thereof is acknowledged in writing by the Administrator.

ARTICLE V.

ACT PROVISIONS

Section 5.01   Named Fiduciary and Administrator. The Bank shall be the Named Fiduciary and the Administrator of this Agreement. The Administrator shall be responsible for the interpretation and administration of the Agreement as established herein. The Bank may delegate to others certain aspects of the management and operational responsibilities of the Agreement, including the employment of advisors and the delegation of ministerial duties to qualified individuals.

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Section 5.02   Claims Procedure and Arbitration. In the event that benefits under this Agreement are not paid to the Executive (or to his Beneficiary in the case of the Executive's death) and such claimant feels he is entitled to receive such benefits, then a written claim must be made to the Administrator within 60 days from the date payments are refused.   The Administrator shall review the written claim and, if the claim is denied, in whole or in part, it shall provide in writing, within 90 days of receipt of such claim, its specific reasons for such denial, reference to the provisions of this Agreement upon which the denial is based, and any additional material or information necessary to perfect the claim.   Such writing by the Administrator shall further indicate the additional steps which must be undertaken by claimant if an additional review of the claim denial is desired.

If claimant desires a second review, he shall notify the Administrator in writing within 60 days of the first claim denial.   Claimant may review this Agreement or any documents relating thereto and submit any issues and comments, in writing, he may feel appropriate. In its sole discretion, the Administrator shall then review the second claim and provide a written decision within 60 days of receipt of such claim. This decision shall state the specific reasons for the decision and shall include reference to specific provisions of this Agreement upon which the decision is based.

If claimant continues to dispute the benefit denial based upon completed performance of this Agreement or the meaning and effect of the terms and conditions thereof, then claimant may submit the dispute to an arbitration panel for settlement. The arbitration panel shall consist of three members: one member selected by the claimant, one member selected by the Bank, and the third member selected by the first two members. The arbitration panel shall conduct the arbitration in accordance with the applicable rules of the American Arbitration Association. The arbitral award may grant any relief deemed by the arbitrators to be just and equitable and shall state the reasons for the award and the relief granted. The patties hereto agree that they, their heirs, personal representatives, successors and assigns shall be bound by the decision of the arbitration panel with respect to any controversy properly submitted to it for determination. Any award rendered may be confirmed, judgment upon any award rendered may be entered, and such award of the judgment thereon may be enforced in any court of any state or country having jurisdiction over the parties.

ARTICLE VI.

MISCELLANEOUS

Section 6.01 No Effect on Employment Rights. Nothing contained herein will confer upon the Executive the right to be retained in the service of the Bank nor limit the right of the Bank to discharge or otherwise deal with the Executive without regard to the existence of the Agreement. The following conditions shall apply to this Agreement:

(a) The Bank's Board of Directors may terminate the Executive at any time, but any termination by the Bank's Board of Directors other than termination for Cause shall not prejudice the Executive's vested right to compensation or other benefits under the Agreement. As provided in Section 2.02, the Executive shall have no right to receive additional compensation or other benefits after termination for Cause.

(b) If the Executive 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)(l) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(l)), the Bank's obligations under the Agreement shall be suspended (except vested rights) as of the date of termination of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Executive all or part of   the   compensation   withheld   while   its   contract   obligations   were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

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(c) If   the Executive is terminated 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)(l) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4) or (g)(l)), all non-vested obligations of the Bank under the Agreement shall terminate as of the effective date of the order.

(d) If the Bank is in default (as defined in Section 3(x)(l) of the Federal Deposit Insurance Act), all non-vested obligations under the Agreement shall terminate as of the date of default.

(e) All non-vested obligations under the Agreement shall be terminated, except to the extent determined that continuation of the Agreement is necessary for the continued operation of the Bank:

(i) by the Director of the Federal Deposit Insurance Corporation or his 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 §13(c) of the Federal Deposit Insurance Act; or

(ii) by the Director of the Federal Deposit Insurance Corporation or his designee, at the time the Director or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition.

Any rights of the parties that have already vested shall not be affected by such action.

Section 6.02 State Law. The Agreement is established under, and will be construed according to, the laws of the state of Indiana, to the extent such laws are not preempted by the Act and valid regulations published thereunder.

Section 6.03 Severability. In the event that any of the provisions of this Agreement or portion thereof are held to be inoperative or invalid by any court of competent jurisdiction, then: (a) insofar as is reasonable, effect will be given to the intent manifested in the provisions held invalid or inoperative, and (b) the validity and enforceability of the remaining provisions will not be affected thereby.

Section 6.04 Incapacity of Recipient. In the event the Executive is declared incompetent and a conservator or other person legally charged with the care of his person or Estate is appointed, any benefits under the Agreement to which such Executive is entitled shall be paid to such conservator or other person legally charged with the care of his person or Estate.

Section 6.05 Limitations on Liability. Notwithstanding any of the preceding provisions of the Agreement, no individual acting as an employee or agent of the Bank or as a member of the Board of Directors shall be personally liable to the Executive or any other person for any claim, loss, liability or expense incurred in connection with the Agreement.

Section 6.06   Gender and Number. Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. Similarly, words in the plural shall be construed in the singular and vice versa, whenever applicable.

Section 6.07   Effect on Other Corporate Benefits. Nothing contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or nonqualified pension, profit sharing, group, bonus or other supplemental compensation plan or fringe benefit agreement constituting a part of the Bank's existing or future compensation structure.

Section 6.08   Inurement. This Agreement shall be binding upon and shall inure to the benefit of the Bank, its successors and assigns, and the Executive, his successors, heirs, executors, administrators and Beneficiaries.

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Section 6.09   Headings. Headings and sub-headings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

ARTICLE VII.

AMENDMENT AND PLAN TERMINATION

Section 7.01   Amendments.   The Bank may amend this Agreement unilaterally by written action. Any amendment of the Agreement shall be made pursuant to a resolution of the Board of Directors of the Bank and shall be effective as of the date of such resolution.

Section 7.02   Plan Termination Generally. The Bank may terminate this Agreement unilaterally by written action.   However, if such termination is done in anticipation of or pursuant to a Change in Control, the Bank shall pay the final Contribution due pursuant to Section 2.01.

ARTICLE VIII.

EXECUTION

Section 8.01   This Agreement sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby, and any previous agreements or understandings between the parties hereto regarding the subject matter hereof are merged into and superseded by this Agreement.

Section 8.02   This Agreement shall be executed in triplicate, each copy of which, when so executed and delivered, shall be an original, but all three copies shall together constitute one and the same instrument.

[Signature Page Follows]

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MUTUALBANK:

(Bank)

By:

Title:

ATTEST:
	EXECUTIVE:
	Patrick C. Botts

WITNESS:

[Signature Page for Restated Executive Supplemental Retirement Income Agreement for Patrick C. Botts]

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EXHIBIT A

SCHEDULE OF CONTRIBUTIONS and interest factor

Schedule of Annual Gross Contributions:

Plan Year	Amount
2015	$	6,602
2016	$	7,358
2017	$	8,194
2018	$	9,119
2019	$	10,141
2020	$	11,269
2021	$	12,516
2022	$	13,891
2023	$	15,408
2024	$	17,080

Interest Factor: Eight percent (8%) per annum compounded monthly

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EXHIBIT B

RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT BENEFICIARY DESIGNATION

The Executive, under the terms of the Restated Executive Supplemental Retirement Income Agreement executed by the Bank, effective as of the ___ day of ______ 2016, hereby designates the following Beneficiary to receive any guaranteed payments or death benefits under such Agreement, following his death:

PRIMARY BENEFICIARY:

SECONDARY BENEFICIARY:

This Beneficiary Designation hereby revokes any prior Beneficiary Designation which may have been in effect.

This Beneficiary Designation is revocable:

DATE: _______, 20____

WITNESS EXECUTIVE

ACKNOWLEDGEMENT:

Received by MutualBank this __ day of __________, 20__.

Name:

Title:

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RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT

INCOME AGREEMENT FOR

DAVID W. HEETER

This Restated Executive Supplemental Retirement Income Agreement (the "Agreement"), effective as of the 19th day of December 2016, amends and restates the Executive Supplemental Retirement Income Agreement (as originally entered into on November 15, 1996 and as most recently amended and restated on April 1, 2015) and formalizes the understanding by and between MUTUALBANK (the "Bank"), an Indiana commercial bank, and DAVID W. HEETER referred to as "Executive."

ARTICLE I.

DEFINITIONS

When used herein, the following words and phrases shall have the meanings below unless the context clearly indicates otherwise:

Section 1.01   "Act" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

Section 1.02   "Bank" means MutualBank and any successor thereto.

Section 1.03   "Beneficiary" means the person or persons (and their heirs) designated as Beneficiary in Exhibit B of this Agreement to whom the deceased Executive's benefits are payable. If no Beneficiary is so designated, then the Executive's Spouse, if living, will be deemed the Beneficiary. If the Executive's Spouse is not living, then the Children of the Executive will be deemed the Beneficiaries and will take on a per stirpes basis. If there are no Children, then the Estate of the Executive will be deemed the Beneficiary.

Section 1.04   "Board of Directors" means the board of directors of the Bank.

Section 1.05   "Change in Control" means 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.

Section 1.06   "Children" means all natural or adopted children of the Executive, and issue of any predeceased child or children.

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Section 1.07   "Code" means the Internal Revenue Code of 1986, as amended from time to time.

Section 1.08   “Company” means MutualFirst Financial, Inc., a Maryland corporation and the sole stockholder of the Bank.

Section 1.09   "Contributions" means those annual contributions which the Bank is required to make in the amounts set forth in Exhibit A. The Bank shall pay Contributions to the Executive within the tax year that the Executive owes taxes for such Contributions under the Agreement.

Section 1.10   "Effective Date" of this Agreement as amended and restated shall be the date first written above.

Section 1.11   "Estate" means the estate of the Executive.

Section 1.12   "Interest Factor" means monthly discounting at a rate set forth in Exhibit A.

Section 1.13    "Plan Administrator" or "Administrator" shall mean the Bank.

Section 1.14    "Plan Year" shall mean the 12-month period commencing on January 1^st and each consecutive 12-month period thereafter.

Section 1.15   "Spouse" means the individual to whom the Executive is legally married at the time of the Executive's death.

Section 1.16   "Termination of Employment" means a cessation or reduction in the Executive’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), for any reason other than death. Whether a Termination of Employment has occurred is determined based on whether the facts and circumstances indicate that the Bank and the Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Executive would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period.

BENEFITS—GENERALLY

Section 2.01   Payment Upon a Change in Control.   If a Change in Control occurs, followed within 36 months by either (i) the Executive's   involuntary Termination of Employment, or (ii) a termination by the Executive as a result of any of the following: (a) a material diminution of or interference with the Executive’s duties, titles, responsibilities and benefits as Chief Executive Officer of the Bank and President and Chief Executive Officer of the Company, (b) a change in the principal workplace of the Executive to a location outside of a 30 mile radius from the Bank’s headquarters office as of the date hereof, (c) a material reduction in the number or seniority of other Bank personnel reporting to the Executive 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 Executive, other than as part of a Bank-or Company-wide reduction in staff, (d) a material reduction in the Executive’s salary or a material adverse change in the Executive’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 (e) a material permanent increase in the required hours of work or the workload of the Executive; provided, however, that before the Executive terminates his employment pursuant to clause (ii) above, the Executive must first provide written notice to the Bank and the Company within ninety (90) days of the initial existence of the condition, describing the existence of such condition, and the Bank and the Company shall thereafter have the right to remedy the condition within thirty (30) days of the date they received the written notice from the Executive. If the Bank and the Company remedy the condition within such thirty (30) day cure period, then the Executive shall not have the right to terminate his employment as the result of such event. If the Bank and the Company do not remedy the condition within such thirty (30) day cure period, then the Executive 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 Bank shall be required to make a final Contribution to the Executive within ten days of the Termination of Employment, subject to Section 2.07 below.   The amount of such final Contribution shall be equal to the present value (computed using a discount rate equal to the Interest Factor) of all remaining Contributions which would have been required to be made on behalf of the Executive if the Executive had remained in the employ of the Bank.

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Section 2.02   Termination for Cause.   If the Executive is terminated for Cause, no further Contributions shall be required of the Bank, and if not yet made, no Contribution shall be required for the Plan Year in which such Termination of Employment for Cause occurs.

Section 2.03   Voluntary Termination of Employment. If the Executive's employment with the Bank is voluntarily terminated for any reason other than a termination for Cause or a termination following a Change in Control, the Executive shall not be entitled to any Contributions attributable to any Plan Years which commence subsequent to the date of termination.

Section 2.04   Involuntary Termination of Employment. If the Executive's employment with the Bank is involuntarily terminated for any reason, excluding termination for Cause or termination following a Change in Control, the Bank shall be required to make a final Contribution to the Executive within ten days of the Termination of Employment, subject to Section 2.07 below.   The amount of such final Contribution shall be an amount equal to: (i) the full Contribution required for the Plan Year in which such voluntary termination occurs, if not yet made, plus (ii) the present value (computed using a discount rate equal to the Interest Factor) of the lesser of (A) the next five years Contributions to the Executive or (B) all remaining Contributions to the Executive.

Section 2.05   Death During Employment. If the Executive dies while employed by the Bank prior to payment of all remaining Contributions, the Bank shall be required to make a Contribution to the Beneficiaries equal to the sum of the remaining Contributions set forth in Exhibit A, reduced by any payment to the Beneficiaries under any life insurance policies that may have been obtained on the Executive's life with premiums paid by the Bank. Such final Contributions shall be payable in a lump sum within ten days of the Executive's death. [LET’S DISCUSS]

Section 2.06   Additional Death Benefit - Burial Expense. In addition to the above-described death benefits, upon the Executive’s death, the Executive's Beneficiary shall be entitled to receive a one-time lump sum death benefit in the amount of Thirty Thousand ($30,000.00) Dollars. The Executive's Beneficiary shall not be entitled to such benefit if the Executive is terminated for Cause prior to death.

Section 2.07   Restriction on Timing of Contributions. If (a) the Contributions payable under Section 2.01 or Section 2.04 above are deemed to be deferred compensation and are not exempt from Section 409A of the Code pursuant to either the short-term deferral exemption in Treasury Regulation §1.409A-1(b)(4) or the separation pay plan exemption in Treasury Regulation §1.409A-1(b)(9), and (b) the Executive is a “Specified Employee” (as defined in Section 409A of the Code) at the time of his Termination of Employment, then such Contributions shall not be paid until (y) the later of the 185th day following the Executive’s Termination of Employment or the 18-month anniversary of the Effective Date, or (z) if the Executive dies prior to the time specified in clause (y), the date of his earlier death (the “Delayed Distribution Date”). Any payments deferred on account of the preceding sentence shall be accumulated without interest and paid on the Delayed Distribution Date 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 Section 2.01 or Section 2.04 which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation.

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ARTICLE III.

NON-COMPETITION

Section 3.01   Non-Competition. In consideration of the agreements of the Bank contained herein and of the payments to be made by the Bank pursuant hereto, the Executive hereby agrees that, for as long as he remains employed by the Bank, he will devote substantially all of his time, skill, diligence and attention to the business of the Bank, and will not actively engage, either directly or indirectly, in any business or other activity which is, or may be deemed to be, in any way competitive with or adverse to the best interests of the business of the Bank. The Executive further agrees that following his employment with the Bank and continuing until all Contributions payable under this Agreement have been paid, he will not actively engage, either directly or indirectly, in any business or other activity which is, or may be deemed to be, in any way competitive with or adverse to the best interests of the Bank, unless the Executive has the prior express written consent of the Board of Directors of the Bank.

Section 3.02   Breach of Non-Competition Clause.

a.         During Employment.   In the event the Executive breaches Section 3.01 while employed at the Bank, all further Contributions to the Executive shall immediately cease, and all benefits under this Agreement, other than those which can be paid from previous Contributions to the Executive, shall be forfeited.

In the event (i) any breach by the Executive of the agreements and covenants described in Section 3.01 occurs while the Executive is employed at the Bank, and (ii) the Executive's employment with the Bank is terminated due to such breach, such Termination of Employment shall be deemed to be for Cause and, as set forth in Section 2.02 of this Agreement, the Executive shall have no right to receive additional compensation or other benefits pursuant to this Agreement.

b.         Breach Following Termination of Employment. In the event the Executive breaches Section 3.01 following the Executive's Termination of Employment with the Bank, all benefits under this Agreement which have not been paid to the Executive shall be forfeited.

In the event of a Termination of Employment related to a Change in Control as described in Section 2.01, Section 3.01 shall cease to be a condition to the performance by the Bank of its obligations under this Agreement.

ARTICLE IV.

BENEFICIARY DESIGNATION

The Executive shall make or re-confirm his designation of primary and secondary Beneficiaries upon execution of this Agreement and shall have the right to change such designation, at any subsequent time, by submitting to the Administrator, in substantially the form attached as Exhibit B, a written designation of primary and secondary Beneficiaries. Any Beneficiary designation made subsequent to execution of this Agreement shall become effective only when receipt thereof is acknowledged in writing by the Administrator.

ARTICLE V.

ACT PROVISIONS

Section 5.01   Named Fiduciary and Administrator. The Bank shall be the Named Fiduciary and the Administrator of this Agreement. The Administrator shall be responsible for the interpretation and administration of the Agreement as established herein. The Bank may delegate to others certain aspects of the management and operational responsibilities of the Agreement, including the employment of advisors and the delegation of ministerial duties to qualified individuals.

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Section 5.02   Claims Procedure and Arbitration. In the event that benefits under this Agreement are not paid to the Executive (or to his Beneficiary in the case of the Executive's death) and such claimant feels he is entitled to receive such benefits, then a written claim must be made to the Administrator within 60 days from the date payments are refused.   The Administrator shall review the written claim and, if the claim is denied, in whole or in part, it shall provide in writing, within 90 days of receipt of such claim, its specific reasons for such denial, reference to the provisions of this Agreement upon which the denial is based, and any additional material or information necessary to perfect the claim.   Such writing by the Administrator shall further indicate the additional steps which must be undertaken by claimant if an additional review of the claim denial is desired.

If claimant desires a second review, he shall notify the Administrator in writing within 60 days of the first claim denial.   Claimant may review this Agreement or any documents relating thereto and submit any issues and comments, in writing, he may feel appropriate. In its sole discretion, the Administrator shall then review the second claim and provide a written decision within 60 days of receipt of such claim. This decision shall state the specific reasons for the decision and shall include reference to specific provisions of this Agreement upon which the decision is based.

If claimant continues to dispute the benefit denial based upon completed performance of this Agreement or the meaning and effect of the terms and conditions thereof, then claimant may submit the dispute to an arbitration panel for settlement. The arbitration panel shall consist of three members: one member selected by the claimant, one member selected by the Bank, and the third member selected by the first two members. The arbitration panel shall conduct the arbitration in accordance with the applicable rules of the American Arbitration Association. The arbitral award may grant any relief deemed by the arbitrators to be just and equitable and shall state the reasons for the award and the relief granted. The patties hereto agree that they, their heirs, personal representatives, successors and assigns shall be bound by the decision of the arbitration panel with respect to any controversy properly submitted to it for determination. Any award rendered may be confirmed, judgment upon any award rendered may be entered, and such award of the judgment thereon may be enforced in any court of any state or country having jurisdiction over the parties.

ARTICLE VI.

MISCELLANEOUS

Section 6.01 No Effect on Employment Rights. Nothing contained herein will confer upon the Executive the right to be retained in the service of the Bank nor limit the right of the Bank to discharge or otherwise deal with the Executive without regard to the existence of the Agreement. The following conditions shall apply to this Agreement:

(a) The Bank's Board of Directors may terminate the Executive at any time, but any termination by the Bank's Board of Directors other than termination for Cause shall not prejudice the Executive's vested right to compensation or other benefits under the Agreement. As provided in Section 2.02, the Executive shall have no right to receive additional compensation or other benefits after termination for Cause.

(b) If the Executive 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)(l) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(l)), the Bank's obligations under the Agreement shall be suspended (except vested rights) as of the date of termination of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Executive all or part of   the   compensation   withheld   while   its   contract   obligations   were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

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(c) If   the Executive is terminated 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)(l) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4) or (g)(l)), all non-vested obligations of the Bank under the Agreement shall terminate as of the effective date of the order.

(d) If the Bank is in default (as defined in Section 3(x)(l) of the Federal Deposit Insurance Act), all non-vested obligations under the Agreement shall terminate as of the date of default.

(e) All non-vested obligations under the Agreement shall be terminated, except to the extent determined that continuation of the Agreement is necessary for the continued operation of the Bank:

(i) by the Director of the Federal Deposit Insurance Corporation or his 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 §13(c) of the Federal Deposit Insurance Act; or

(ii) by the Director of the Federal Deposit Insurance Corporation or his designee, at the time the Director or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition.

Any rights of the parties that have already vested shall not be affected by such action.

Section 6.02 State Law. The Agreement is established under, and will be construed according to, the laws of the state of Indiana, to the extent such laws are not preempted by the Act and valid regulations published thereunder.

Section 6.03 Severability. In the event that any of the provisions of this Agreement or portion thereof are held to be inoperative or invalid by any court of competent jurisdiction, then: (a) insofar as is reasonable, effect will be given to the intent manifested in the provisions held invalid or inoperative, and (b) the validity and enforceability of the remaining provisions will not be affected thereby.

Section 6.04 Incapacity of Recipient. In the event the Executive is declared incompetent and a conservator or other person legally charged with the care of his person or Estate is appointed, any benefits under the Agreement to which such Executive is entitled shall be paid to such conservator or other person legally charged with the care of his person or Estate.

Section 6.05 Limitations on Liability. Notwithstanding any of the preceding provisions of the Agreement, no individual acting as an employee or agent of the Bank or as a member of the Board of Directors shall be personally liable to the Executive or any other person for any claim, loss, liability or expense incurred in connection with the Agreement.

Section 6.06   Gender and Number. Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. Similarly, words in the plural shall be construed in the singular and vice versa, whenever applicable.

Section 6.07   Effect on Other Corporate Benefits. Nothing contained in this Agreement shall affect the right of the Executive to participate in or be covered by any qualified or nonqualified pension, profit sharing, group, bonus or other supplemental compensation plan or fringe benefit agreement constituting a part of the Bank's existing or future compensation structure.

Section 6.08   Inurement. This Agreement shall be binding upon and shall inure to the benefit of the Bank, its successors and assigns, and the Executive, his successors, heirs, executors, administrators and Beneficiaries.

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Section 6.09   Headings. Headings and sub-headings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement. 

ARTICLE VII.

AMENDMENT AND PLAN TERMINATION

Section 7.01   Amendments.   The Bank may amend this Agreement unilaterally by written action. Any amendment of the Agreement shall be made pursuant to a resolution of the Board of Directors of the Bank and shall be effective as of the date of such resolution.

Section 7.02   Plan Termination Generally. The Bank may terminate this Agreement unilaterally by written action.   However, if such termination is done in anticipation of or pursuant to a Change in Control, the Bank shall pay the final Contribution due pursuant to Section 2.01.

ARTICLE VIII.

EXECUTION

Section 8.01   This Agreement sets forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby, and any previous agreements or understandings between the parties hereto regarding the subject matter hereof are merged into and superseded by this Agreement.

Section 8.02   This Agreement shall be executed in triplicate, each copy of which, when so executed and delivered, shall be an original, but all three copies shall together constitute one and the same instrument.

[Signature Page Follows]

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MUTUALBANK:

(Bank)

By:

Title:

ATTEST:
	EXECUTIVE:
	David W. Heeter

WITNESS:

[Signature Page for Restated Executive Supplemental Retirement Income Agreement for David W. Heeter]

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EXHIBIT A

SCHEDULE OF CONTRIBUTIONS AND INTEREST FACTOR

Schedule of Annual Gross Contributions:

Plan Year	Amount
2015	$	11,302
2016	$	12,595
2017	$	14,028
2018	$	15,611
2019	$	17,359
2020	$	19,291
2021	$	21,423

Interest Factor:       Eight percent (8%) per annum compounded monthly

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EXHIBIT B

RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT BENEFICIARY DESIGNATION

The Executive, under the terms of the Restated Executive Supplemental Retirement Income Agreement executed by the Bank, effective as of the ___ day of ______ 2016, hereby designates the following Beneficiary to receive any guaranteed payments or death benefits under such Agreement, following his death:

PRIMARY BENEFICIARY:

SECONDARY BENEFICIARY:

This Beneficiary Designation hereby revokes any prior Beneficiary Designation which may have been in effect.

This Beneficiary Designation is revocable:

DATE: _______, 20____

WITNESS EXECUTIVE

ACKNOWLEDGEMENT:

Received by MutualBank this __ day of __________, 20__.

Name:

Title:

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EX-10.5

Exhibit 10.5

AMENDED AND RESTATED DIRECTOR SHAREHOLDER BENEFIT

PROGRAM AGREEMENT FOR JERRY McVICKER

This Amended and Restated Director Shareholder Benefit Program Agreement (the “Agreement”), effective as of the 22nd day of December 2016, amends and restates the Director Shareholder Benefit Program Agreement originally dated September 1, 2000 and last amended October 20, 2010 (the “Prior Agreement”) between MUTUALBANK (f/k/a Mutual Federal Savings Bank), an Indiana commercial bank (the “Bank”), and Jerry McVicker (hereinafter referred to as “Director”). Any reference herein to the “Company” shall mean MutualFirst Financial, Inc., the holding company of the Bank.

WITNESSETH:

WHEREAS, the Director serves the Bank;

WHEREAS, the Bank recognizes the valuable services heretofore performed by the Director and wishes to encourage his continued service;

WHEREAS, the Prior Agreement was originally entered into between the Director and First Federal Savings Bank of Marion (“First Federal”) in order to assure the Director that he will be entitled to a certain amount of additional compensation for some definite period of time from and after retirement from active service or other termination of employment and to provide his beneficiary with benefits from and after death;

WHEREAS, the Prior Agreement was previously amended on January 9, 2001, February 12, 2003 and October 20, 2010 and was assumed by the Bank in connection with its acquisition of First Federal;

WHEREAS, the Bank and the Director desire to restate the Prior Agreement to reflect the prior amendments and to make certain additional changes, with the Agreement as amended and restated to provide the terms and conditions upon which the Bank shall pay such additional compensation to the Director after retirement or other termination of employment and/or death benefits to his beneficiary after death; and

WHEREAS, the Bank has adopted this Amended and Restated Director Shareholder Benefit Program Agreement which controls all issues relating to benefits as described herein;

NOW, THEREFORE, in consideration of the premises and of the mutual promises herein contained, the Bank and the Director agree as follows:

SECTION I

DEFINITIONS

When used herein, the following words and phrases shall have the meanings below unless the context clearly indicates otherwise:

1.1 “Act” means the Employee Retirement income Security Act of 1974, as amended from time to time.

1.2 “Administrator” means the Bank.

1.3 “Bank” means MutualBank and any successor thereto.

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1.4 “Beneficiary” means the person or persons (and their heirs) designated as Beneficiary in Exhibit B of this Agreement to whom the deceased Director’s benefits are payable. If no Beneficiary is so designated, then the Director’s Spouse, if living, will be deemed the Beneficiary. If the Director’s Spouse is not living, then the Children of the Director will be deemed the Beneficiaries and will take on a per stirpes basis. If there are no Children, then the Estate of the Director will be deemed the Beneficiary.

1.5 “Benefit Age” means the later of: (i) the Director’s seventieth (70^th) birthday or (ii) Director’s Termination of Service.

1.6 “Benefit Eligibility Date” means the date on which the Director is entitled to receive any benefit(s) pursuant to Section(s) III or V of this Agreement. It shall be the first day of the month following the month in which the Director attains his Benefit Age.

1.7 “Board of Directors” means the board of directors of the Bank.

1.8 “Cause” means personal dishonesty, willful misconduct, willful malfeasance, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses), or final cease-and-desist order, material breach of any provision of this Agreement, or gross negligence in matters of material importance to the Bank.

1.9 “Change in Control” means 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.

1.10 “Children” means all natural or adopted children of the Director, and issue of any predeceased child or children.

1.11 “Code” means the Internal Revenue Code of 1986, as amended from time to time.

1.12 “Contribution(s)” means those annual contributions which the Bank is required to make to the Retirement Income Trust Fund on behalf of the Director in accordance with Subsection 2.1(a) and this Subsection 1.12 of the Agreement. The methodology for determining such contributions shall be: 9.25% of the difference, adjusted to take into account the Bank’s tax rate, between the Bank’s aggregate after-tax income derived from annual increases in the cash surrender value of the hypothetical pool of no-load, no-surrender charge life insurance policies described in Appendix I and the after-tax Cost of Funds Expense for the Plan Year for which the annual contribution is to be made; provided, however, that in no event shall such yearly Contribution exceed that accrual necessary under the benefit/years of service method for the Bank to pay, beginning at the Benefit Eligibility Date, the Survivor’s Benefit payable over the Payout Period.

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If such contracts for life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased, or were not subsequently surrendered or lapsed. Such illustrations will be received from the insurance company and will indicate the increases in policy cash surrender values for purposes of calculating the Contribution to the Retirement Income Trust Fund.

In either case, references to life insurance contracts are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Director and his beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Agreement than that of an unsecured creditor of the Bank.

1.13 “Cost of Funds Expense” means an interest rate as hereinafter defined to be applied and compounded annually with respect to the after-tax cash flow related to the Agreement, including benefit payments and an initial premium sum of Five Million Five Hundred Thousand Dollars ($5,500,000). The interest rate shall be equal to 80% of the last available one (1) year advance rate from the Federal Home Loan Bank in Indianapolis as determined on January 1 of each Plan Year, or such other rate as is mutually agreed by the Bank and the Director.

1.14 “Director” means a person serving as a Director, Advisory Director, or Director Emeritus of the Bank.

1.15 “Disability” means the Director: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees or directors of the Bank. Medical determination of Disability may be made by either the Social Security Administration or by the provider of an accident or health plan covering employees or directors of the Bank, provided that the definition of “disability” applied under such disability insurance program complies with the requirements of the preceding sentence. Upon the request of the Administrator, the Director must submit proof to the Administrator of the Social Security Administration’s or the provider’s determination.

1.16 “Effective Date” of this Agreement as amended and restated shall be the date first written above.

1.17 “Estate” means the estate of the Director.

1.18 “Interest Factor” means monthly compounding, discounting or annuitizing, as applicable, at a rate of Seven Percent (7%) per annum.

1.19 “Payout Period” means the time frame during which certain benefits payable hereunder shall be distributed. Payments shall be made in monthly installments commencing on the first day of the month following the occurrence of the event which triggers distribution and continuing for one hundred eighty (180) months. Should the Director make a Timely Election to receive a lump sum benefit payment, the Director’s Payout Period shall be deemed to be one (1) month.

1.20 “Plan Year” shall mean the calendar year.

1.21 “Retirement Age” means the Director’s seventieth (70th) birthday; provided, however, that the Director’s actual retirement from full-time service may occur on or after the Director attains age seventy (70) and, in such case, the Director’s age at actual retirement shall be deemed the Retirement Age.

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1.22 “Retirement Income Trust Fund” means the trust fund account established by the Director and into which annual Contributions will be made by the Bank on behalf of the Director pursuant to Subsection 2.1. The contractual rights of the Bank and the Director with respect to the Retirement Income Trust Fund shall be outlined in a separate writing to be known as the Jerry McVicker Grantor Trust agreement.

1.23 “Specified Employee” means an individual who at the time of Termination of Service is a key employee of the Company or the Bank (or any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g)), if any stock of the Company or the Bank (or any other affiliated entities that are deemed to constitute a “service recipient”) is publicly traded on an established securities market or otherwise. For purposes of this Agreement, an individual is a key employee if the employee meets the requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with the regulations thereunder and disregarding Section 416(i)(5)) at any time during the 12-month period ending on December 31 (the “identification period”). If the Director is a key employee during an identification period, the Director is treated as a key employee for purposes of this Agreement during the twelve (12) month period that begins on the first day of April following the close of the identification period.

1.24 “Spouse” means the individual to whom the Director is legally married at the time of the Director’s death, provided, however, that the term “Spouse” shall not refer to an individual to whom the Director is legally married at the time of death if the Director and such individual have entered into a formal separation agreement or initiated divorce proceedings.

1.25 “Suicide” means the act of intentionally killing oneself.

1.26 “Supplemental Retirement Income Benefit” means an annual amount (before taking into account federal and state income taxes), payable in monthly installments throughout the Payout Period equal to the annuitized value, using the Interest Factor, of the Retirement Income Trust Fund.

1.27 “Survivor’s Benefit” means the benefit provided to Director’s Beneficiary payable over the Payout Period as set forth in Exhibit A.

1.28 “Termination of Service” means the termination of the Director’s service with the Bank (and any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(h)(3), including the Company) for any reason other than death or Disability. Whether a Termination of Service takes place is determined in accordance with the requirements of Code Section 409A and related Treasury guidance or Regulations based on the facts and circumstances surrounding the termination of the Director’s service.

1.29 “Timely Election” means the Director has made an election to change the form of benefit payment(s) by filing with the Administrator a Notice of Election to Change Form of Payment (Exhibit C of this Agreement). Such change will not take effect until twelve (12) months following the date it is received by the Administrator. Distributions (except distributions due to death and Disability) must be delayed at least five (5) years from the date the distributions otherwise would have been made. Any election related to distribution at a specified time or pursuant to a fixed schedule must be made twelve (12) months prior to the date the distribution is scheduled to be paid.

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SECTION II

BENEFITS - GENERALLY

2.1 (a) Retirement Income Trust Fund. The Director has established the Jerry McVicker Grantor Trust into which the Bank shall be required to make annual Contributions on the Director’s behalf, pursuant to this Section II of the Agreement, and the Director shall select a trustee for such trust from time to time in accordance with the terms of such trust. The trustee shall maintain an account, separate and distinct from the Director’s personal contributions, which account shall constitute the Retirement Income Trust Fund. The trustee shall be charged with the responsibility of investing all contributed funds. Distributions from the Retirement Income Trust Fund of the Jerry McVicker Grantor Trust may be made by the trustee to the Director, for purposes of payment of any income or employment taxes due and owing on Contributions by the Bank to the Retirement Income Trust Fund, if any, and on any taxable earnings associated with such Contributions which the Director shall be required to pay from year to year, under applicable law, prior to actual receipt of any benefit payments from the Retirement Income Trust Fund. To the extent this Agreement is inconsistent with the Jerry McVicker Grantor Trust agreement, the Jerry McVicker Grantor Trust Agreement shall supersede this Agreement.

The annual Contributions required to be made by the Bank to the Retirement Income Trust Fund will be determined in accordance with Subsection 1.12. Contributions shall be made by the Bank to the Retirement Income Trust Fund (i) within seventy-five (75) days of establishment of such trust, and (ii) within the first thirty (30) days of the beginning of each subsequent Plan Year, unless this Section expressly provides otherwise.

(b)(1) Contributions Made Annually

The annual Contributions to the Retirement Income Trust Fund shall continue each year, unless this Subsection 2.1(b) specifically states otherwise, until the Plan Year of the Director’s Termination of Service as a Director.

(2) Termination Following a Change in Control

If a Change in Control occurs, followed by the Director’s involuntary Termination of Service or termination due to Disability, the Contribution set forth below shall be required of the Bank. The Bank shall be required to make an immediate lump sum contribution to the Retirement Income Trust Fund equal to the current present value (using the Interest Factor) of the right to receive a Supplemental Retirement Income Benefit equal to the Survivor’s Benefit at age 70 and payable over the Payout Period less the sum of all prior pre-tax Contributions to the Retirement Income Trust Fund (plus interest accrued on those Contributions using the Interest Factor).

(3) Termination For Cause

If the Director is terminated for Cause pursuant to Subsection 5.2, no further Contribution(s) to the Retirement Income Trust Fund shall be required of the Bank, and if not yet made, no Contribution shall be required for the Plan Year in which such termination for Cause occurs.

(4) Involuntary Termination of Service.

If there is an involuntary Termination of Service for any reason, excluding termination for Cause, or death, or termination following a Change in Control, no further Contribution(s) to the Retirement Income Trust Fund shall be required of the Bank, and if not yet made, no contribution shall be required for the Plan Year in which such termination occurs.

(5) Death During Employment.

If the Director dies while employed by the Bank, the Bank shall be required to make an immediate lump sum contribution to the Retirement Income Trust Fund including (i) the full Contribution required for the Plan Year in which such termination occurs, if not yet made, plus (ii) the current present value (using the Interest Factor) of the right to receive the Survivor’s Benefit immediately and payable over the Payout Period less the sum of all prior pre-tax Contributions to the Retirement Income Trust Fund (plus interest accrued on those Contributions using the Interest Factor).

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(6) Voluntary Termination

If the Director voluntarily terminates service or does not seek reappointment to the Board, no further Contribution(s) to the Retirement Income Trust Fund shall be required of the Bank, and if not yet made, no Contribution shall be required for the Plan Year in which such termination occurs.

(7) Disability Prior to Change in Control

If the Director becomes entitled to disability benefits under Section VI prior to a Change in Control, no further Contribution(s) to the Retirement Income Trust Fund shall be required of the Bank, and if not yet made, no Contribution shall be required for the Plan Year in which such termination occurs.

SECTION III

RETIREMENT BENEFIT

3.1 (a) Normal Form of Payment. If (i) the Director is employed with the Bank until reaching Retirement Age, and (ii) the Director has not made a Timely Election to receive a lump sum benefit, this Subsection 3.1(a) shall be controlling with respect to retirement benefits.

The Retirement Income Trust Fund, measured as of the Director’s Benefit Age, shall be annuitized (using the Interest Factor) into monthly installments and shall be payable for the Payout Period. Such benefit payments shall commence on the Director’s Benefit Eligibility Date, subject to Section 6.2 of this Agreement. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is less than the rate of return used to annuitize the Retirement Income Trust Fund, no additional contributions to the Retirement Income Trust Fund shall be required by the Bank in order to fund the final benefit payment(s) and make up for any shortage attributable to the less-than-expected rate of return. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is greater than the rate of return used to annuitize the Retirement Income Trust Fund, the final benefit payment to the Director (or Beneficiary) shall include the excess amounts attributable to the greater-than-expected rate of return. In the event the Director dies at any time after attaining Benefit Age, but prior to commencement or completion of all the payments due and owing hereunder, the trustee of the Retirement Income Trust Fund shall pay to the Beneficiary the monthly installments (or a continuation of such monthly installments if they have already commenced) for the balance of months remaining in the Payout Period.      

(b) Alternative Payout Option. If (i) the Director is employed with the Bank until reaching Retirement Age, and (ii) the Director has made a Timely Election to receive a lump sum benefit, this Subsection 3.1(b) shall be controlling with respect to retirement benefits.

The balance of the Retirement Income Trust Fund, measured as of the Director’s Benefit Age, shall be paid to the Director in a lump sum on the Benefit Eligibility Date, subject to Section 6.2 of this Agreement. In the event the Director dies after becoming eligible for such payment (upon attainment of Benefit Age), but before the actual payment is made, the Beneficiary shall be entitled to receive the lump sum benefit in accordance with this Subsection 3.1(b) within thirty (30) days of the date the Administrator receives notice of the Director’s death.

SECTION IV

PRE-RETIREMENT DEATH BENEFIT

4.1 (a) Normal Form of Payment. If (i) the Director dies while employed by the Bank, and (ii) the Director has not made a Timely Election to receive a lump sum benefit, this Subsection 4.1(a) shall be controlling with respect to pre-retirement death benefits.

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The balance of the Retirement Income Trust Fund, measured as of the later of (i) the Director’s death, or (ii) the date any final lump sum Contribution is made pursuant to Subsection 2.1(b), shall be annuitized (using the Interest Factor) into monthly installments and shall be payable to the Beneficiary for the Payout Period. Such benefit payments shall commence within thirty (30) days of the date the Administrator receives notice of the Director’s death. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is less than the rate of return used to annuitize the Retirement Income Trust Fund, no additional contributions to the Retirement Income Trust Fund shall be required by the Bank in order to fund the final benefit payment(s) and make up for any shortage attributable to the less-than-expected rate of return. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is greater than the rate of return used to annuitize the Retirement Income Trust Fund, the final benefit payment to the Beneficiary shall include the excess amounts attributable to the greater-than-expected rate of return.

(b) Alternative Payout Option. If (i) the Director dies while employed by the Bank, and (ii) the Director has made a Timely Election to receive a lump sum benefit, this Subsection 4.1(b) shall be controlling with respect to pre-retirement death benefits.

The balance of the Retirement Income Trust Fund, measured as of the later of (i) the Director’s death, or (ii) the date any final lump sum Contribution is made pursuant to Subsection 2.1(b), shall be paid to the Beneficiary in a lump sum within thirty (30) days of the date the Administrator receives notice of the Director’s death.

SECTION V

BENEFIT(S) IN THE EVENT OF TERMINATION OF SERVICE

PRIOR TO RETIREMENT AGE

5.1 Involuntary Termination of Service Other Than for Cause. In the event the Director’s service with the Bank is involuntarily terminated prior to Retirement Age, for any reason, including a Change in Control, but excluding (i) the Director’s pre-retirement death, which is provided for in Section IV, or (ii) termination for Cause, which is provided for in Subsection 5.2, the Director (or Beneficiary) shall be entitled to receive benefits in accordance with this Subsection 5.1. Payment of benefits pursuant to this Subsection 5.1 shall be made in accordance with Subsection 5.1(a) or 5.1(b) below, as applicable.

(a) Normal Form of Payment.

(1) Director Lives Until Benefit Age. If (i) after such Termination of Service, the Director lives until attaining Benefit Age, and (ii) the Director has not made a Timely Election to receive a lump sum benefit, this Subsection 5.1(a)(1) shall be controlling with respect to retirement benefits.

The Retirement Income Trust Fund, measured as of the Director’s Benefit Age, shall be annuitized (using the Interest Factor) into monthly installments and shall be payable for the Payout Period. Such benefit payments shall commence on the Benefit Eligibility Date, subject to Section 6.2 of this Agreement. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is less than the rate of return used to annuitize the Retirement Income Trust Fund, no additional contributions to the Retirement Income Trust Fund shall be required by the Bank in order to fund the final benefit payment(s) and make up for any shortage attributable to the less-than-expected rate of return. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is greater than the rate of return used to annuitize the Retirement Income Trust Fund, the final benefit payment to the Director (or Beneficiary) shall include the excess amounts attributable to the greater-than-expected rate of return. In the event the Director dies at any time after attaining Benefit Age, but prior to commencement or completion of all the payments due and owing hereunder, the trustee of the Retirement Income Trust Fund shall pay to the Beneficiary the monthly installments (or a continuation of such monthly installments if they have already commenced) for the balance of months remaining in the Payout Period.

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(2) Director Dies Prior to Benefit Age. If (i) after such Termination of Service, the Director dies prior to attaining Benefit Age, and (ii) the Director has not made a Timely Election to receive a lump sum benefit, this Subsection 5.1(a)(2) shall be controlling with respect to retirement benefits.

The Retirement Income Trust Fund, measured as of the date of the Director’s death, shall be annuitized (using the Interest Factor) into monthly installments and shall be payable for the Payout Period. Such benefit payments shall commence within thirty (30) days of the date the Administrator receives notice of the Director’s death. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is less than the rate of return used to annuitize the Retirement Income Trust Fund, no additional contributions to the Retirement Income Trust Fund shall be required by the Bank in order to fund the final benefit payment(s) and make up for any shortage attributable to the less-than-expected rate of return. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is greater than the rate of return used to annuitize the Retirement Income Trust Fund, the final benefit payment to the Beneficiary shall include the excess amounts attributable to the greater-than-expected rate of return.      

(b) Alternative Payout Option.

(1)      Director Lives Until Benefit Age. If (i) after such Termination of Service, the Director lives until attaining Benefit Age, and (ii) the Director has made a Timely Election to receive a lump sum benefit, this Subsection 5.1(b)(1) shall be controlling with respect to retirement benefits.

The balance of the Retirement Income Trust Fund, measured as of the Director’s Benefit Age, shall be paid to the Director in a lump sum on the Benefit Eligibility Date, subject to Section 6.2 of this Agreement. In the event the Director dies after becoming eligible for such payment (upon attainment of Benefit Age), but before the actual payment is made, the Beneficiary shall be entitled to receive the lump sum benefit in accordance with this Subsection 5.1(b)(1) within thirty (30) days of the date the Administrator receives notice of the Director’s death.   

(2)      Director Dies Prior to Benefit Age. If (i) after such Termination of Service, the Director dies prior to attaining Benefit Age, and (ii) the Director has made a Timely Election to receive a lump sum benefit, this Subsection 5.1(b)(2) shall be controlling with respect to retirement benefits.

The balance of the Retirement Income Trust Fund, measured as of the date of the Director’s death, shall be paid to the Beneficiary within thirty (30) days of the date the Administrator receives notice of the Director’s death.

5.2 Termination for Cause. If the Director is terminated for Cause, all benefits under this Agreement, other than those which can be paid from previous Contributions to the Retirement Income Trust Fund (and earnings on such Contributions), shall be forfeited. Furthermore, no further Contributions shall be required of the Bank for the year in which such termination for Cause occurs (if not yet made). The Director shall be entitled to receive a benefit in accordance with this Subsection 5.2.

The balance of the Director’s Retirement Income Trust Fund shall be paid to the Director (or Beneficiary) in accordance with the form and timing of payment provisions of Section 5.1.

5.3 Voluntary Termination of Service. In the event of the Director’s voluntary Termination of Service with the Bank prior to Retirement Age, for any reason, including the Director’s failure to seek reappointment to the Board but excluding a Change in Control, the Director (or Beneficiary) shall be entitled to receive benefits in accordance with this Subsection 5.3. Payment of benefits pursuant to this Subsection 5.3 shall be made in accordance with Subsection 5.3(a) or 5.3(b) below, as applicable.

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(a) Normal Form of Payment.

If the Director has not made a Timely Election to receive a lump sum benefit, this Subsection 5.3(a) shall be controlling with respect to retirement benefits.

The Retirement Income Trust Fund, measured as of the date of Director’s voluntary Termination of Service, shall be annuitized (using the Interest Factor) into monthly installments and shall be payable for the Payout Period. Such benefit payments shall commence on the Director’s Benefit Eligibility Date, subject to Section 6.2 of this Agreement. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is less than the rate of return used to annuitize the Retirement Income Trust Fund, no additional contributions to the Retirement Income Trust Fund shall be required by the Bank in order to fund the final benefit payment(s) and make up for any shortage attributable to the less-than-expected rate of return. Should Retirement Income Trust Fund assets actually earn a rate of return, following the date such balance is annuitized, which is greater than the rate of return used to annuitize the Retirement Income Trust Fund, the final benefit payment to the Director (or Beneficiary) shall include the excess amounts attributable to the greater-than-expected rate of return. In the event the Director dies after becoming eligible for such payments, but prior to commencement or completion of all monthly payments due and owing hereunder, the trustee of the Retirement Income Trust Fund shall pay to the Beneficiary the monthly installments (or a continuation of such monthly installments if they have already commenced) for the balance of months remaining in the Payout Period.

(b) Alternative Payout Option.

If the Director has made a Timely Election to receive a lump sum benefit, this Subsection 5.3(b) shall be controlling with respect to retirement benefits.

The balance of the Retirement Income Trust Fund, measured as of the date of the Director’s voluntary Termination of Service, shall be paid to the Director in a lump sum within thirty (30) days of the Director’s Benefit Eligibility Date, subject to Section 6.2 of this Agreement. In the event the Director dies after becoming eligible for such payment, but before the actual payment is made, the Beneficiary shall be entitled to receive the lump sum benefit in accordance with this Subsection 5.3(b) within thirty (30) days of the date the Administrator receives notice of the Director’s death.   

SECTION VI

OTHER BENEFITS

6.1 (a) Disability Benefit. If the Director experiences a Disability prior to Retirement Age, the Director shall receive the following Disability benefit in lieu of the retirement benefit(s) available pursuant to Subsection 5.1 (which is (are) not available prior to the Director’s Benefit Eligibility Date).

The lump sum benefit to which the Director is entitled shall be the balance of the Retirement Income Trust Fund. The benefit shall be paid within thirty (30) days following such Disability.

(b) Death Following Disability. In the event the Director dies after becoming eligible for such payment but before the actual payment is made, the Beneficiary shall be entitled to receive the benefit provided for in Subsection 6.1(a) within thirty (30) days of the date the Administrator receives notice of the Director’s death. Furthermore, the Bank shall make a direct, lump sum payment to the Beneficiary in an amount equal to the current present value (using the Interest Factor) of the right to receive a Supplemental Retirement Income Benefit equal to the Survivor’s Benefit immediately and payable over the Payout Period less the sum of all prior pre-tax Contributions to the Retirement Income Trust Fund (plus interest accrued on those Contributions using the Interest Factor). Such lump sum payment shall be payable to the Beneficiary within thirty (30) days of the date the Administrator receives notice of the Director’s death.

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6.2 Restriction on Timing of Distributions.  Notwithstanding any provision of this Agreement to the contrary, if the Director is considered a Specified Employee, the provisions of this Subsection 6.2 shall govern all distributions hereunder. If benefit distributions which would otherwise be made to the Director due to a Termination of Service are limited because the Director is a Specified Employee, then such distributions shall not be made during the first six (6) months following Termination of Service. Rather, any distribution which would otherwise be paid to the Director during such period shall be accumulated and paid to the Director in a lump sum on the first day of the seventh month following the Termination of Service. All subsequent distributions shall be paid in the manner specified.

6.3 Distributions Upon Income Inclusion Under Section 409A of the Code. If, pursuant to Code Section 409A, the Federal Insurance Contributions Act or other state, local or foreign tax, the Director becomes subject to tax on the amounts deferred hereunder, then the Bank may make a limited distribution to the Director in accordance with the provisions of Treasury Regulations Section 1.409A-3(j)(4)(vi), (vii) and (xi). Any such distribution will decrease the Director’s benefit hereunder.

SECTION VII

BENEFICIARY DESIGNATION

The Director shall make or re-confirm his designation of primary and secondary Beneficiaries upon execution of this Agreement and shall have the right to change such designation, at any subsequent time, by submitting to (i) the Administrator, and (ii) the trustee of the Retirement Income Trust Fund, in substantially the form attached as Exhibit B to this Agreement, a written designation of primary and secondary Beneficiaries. Any Beneficiary designation made subsequent to execution of this Agreement shall become effective only when receipt thereof is acknowledged in writing by the Administrator.

SECTION VIII

NON-COMPETITION

8.1 Non-Competition During Service.

In consideration of the agreements of the Bank contained herein and of the payments to be made by the Bank pursuant hereto, the Director hereby agrees that, for as long as he remains a Director of the Bank, he will devote substantially all of his time, skill, diligence and attention to the business of the Bank, and will not actively engage, either directly or indirectly, in financial services or in any business or other activity which is, or may be deemed to be, in any way competitive with or adverse to the best interests of the business of the Bank, its affiliates, subsidiaries, or parent corporation, if any, unless the Director has the prior express written consent of the Bank.

8.2 Breach of Non-Competition Clause.

(a) Continued Service Following Breach.

In the event (i) any material breach by the Director of the agreements and covenants described in Subsection 8.1 occurs, and (ii) the Director continues service at the Bank following such breach, all further Contributions to the Retirement Income Trust Fund shall immediately cease, and all benefits under this Agreement, other than those which can be paid from previous Contributions to the Retirement Income Trust Fund (and earnings on such Contributions), shall be forfeited. The Director (or his Beneficiary) shall be entitled to receive a benefit from the Retirement Income Trust Fund in accordance with the applicable provisions of Section III, IV, V or VI of this agreement.

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(b) Termination of Service Following Breach.

In the event (i) any material breach by the Director of the agreements and covenants described in Subsection 8.1 occurs, and (ii) the Director’s service with the Bank is terminated due to such breach, such termination shall be deemed to be for Cause and the benefits payable to the Director shall be paid in accordance with Subsection 5.2 of this Agreement.

SECTION IX

DIRECTOR’S RIGHT TO ASSETS

The rights of the Director, any Beneficiary, or any other person claiming through the Director under this Agreement, shall be solely those of an unsecured general creditor of the Bank. The Director, the Beneficiary or any other person claiming through the Director, shall only have the right to receive from the Bank those payments or amounts so specified under this Agreement. The Director agrees that he, his Beneficiary, or any other person claiming through him shall have no rights or interests whatsoever in any asset of the Bank, including any insurance policies or contracts which the Bank may possess or obtain to informally fund this Agreement. Any asset used or acquired by the Bank in connection with the liabilities it has assumed under this Agreement shall not be deemed to be held under any trust for the benefit of the Director or his Beneficiaries, unless such asset is contained in the rabbi trust described in Section XlI of this Agreement. Any such asset shall be and remain a general, unpledged asset of the Bank in the event of the Bank’s insolvency.

SECTION X

RESTRICTIONS UPON FUNDING

The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Agreement, other than those Contributions required to be made to the Retirement Income Trust Fund. The Director, his Beneficiaries or any successor in interest to him shall be and remain simply a general unsecured creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. The Bank reserves the absolute right in its sole discretion to either purchase assets to meet its obligations undertaken by this Agreement or to refrain from the same and to determine the extent, nature, and method of such asset purchases. Should the Bank decide to purchase assets such as life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to replace such assets from time to time or to terminate its investment in such assets at any time, in whole or in part. At no time shall the Director be deemed to have any lien, right, title or interest in or to any specific investment or to any assets of the Bank. If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Director, then the Director shall assist the Bank by freely submitting to a physical examination and by supplying such additional information necessary to obtain such insurance or annuities.

SECTION XI

ACT PROVISIONS

11.1 Named Fiduciary and Administrator. The Bank, as Administrator, shall be the Named Fiduciary of this Agreement. As Administrator, the Bank shall be responsible for the management, control and administration of the Agreement as established herein. The Administrator may delegate to others certain aspects of the management and operational responsibilities of the Agreement, including the employment of advisors and the delegation of ministerial duties to qualified individuals.

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11.2 Claims Procedure and Arbitration. In the event that benefits under this Agreement are not paid to the Director (or to his Beneficiary in the case of the Director’s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Administrator within sixty (60) days from the date payments are refused. The Administrator shall review the written claim and, if the claim is denied, in whole or in part, it shall provide in writing, within ninety (90) days of receipt of such claim, its specific reasons for such denial, reference to the provisions of this Agreement upon which the denial is based, and any additional material or information necessary to perfect the claim. Such writing by the Administrator shall further indicate the additional steps which must be undertaken by claimants if an additional review of the claim denial is desired.

If claimants desire a second review, they shall notify the Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Agreement or any documents relating thereto and submit any issues and comments, in writing, they may feel appropriate. In its sole discretion, the Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall state the specific reasons for the decision and shall include reference to specific provisions of this Agreement upon which the decision is based.

If claimants continue to dispute the benefit denial based upon completed performance of this Plan or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to mediation, administered by the American Arbitration Association (“AAA”) (or a mediator selected by the parties) in accordance with the AAA’s Commercial Mediation Rules. If mediation is not successful in resolving the dispute, it shall be settled by arbitration administered by the AAA under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

SECTION XII

MISCELLANEOUS

12.1 No Effect on Rights to Serve. Nothing contained herein will confer upon the Director the right to be retained in the service of the Bank nor limit the right of the Bank to discharge or otherwise deal with the Director without regard to the existence of the Agreement.

12.2 State Law. The Agreement is established under, and will be construed according to, the laws of the state of Indiana, to the extent such laws are not preempted by the Act and valid regulations published thereunder.

12.3 Severability. In the event that any of the provisions of this Agreement or any portion thereof are held to be inoperative or invalid by any court of competent jurisdiction, then: (1) insofar as is reasonable, effect will be given to the intent manifested in the provisions held invalid or inoperative, and (2) the validity and enforceability of the remaining provisions will not be affected thereby.

12.4 Incapacity of Recipient. In the event the Director is declared incompetent and a conservator or other person legally charged with the care of his person or Estate is appointed, any benefits under the Agreement to which such Director is entitled shall be paid to such conservator or other person legally charged with the care of his person or Estate.

12.5 Unclaimed Benefit. The Director shall keep the Bank informed of his current address and the current address of his Beneficiaries. The Bank shall not be obligated to search for the whereabouts of any person. If the location of the Director or his Beneficiary(ies) is not made known to the Bank by the time any payment is due, the Bank may discharge its obligation by payment to the Director’s Estate. If there is no Estate in existence at such time or if such fact cannot be determined by the Bank, the Director and his Beneficiary(ies) shall thereupon forfeit any rights to the benefits provided for such Director and/or Beneficiary under this Agreement.

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12.6 Limitations on Liability. Notwithstanding any of the preceding provisions of the Agreement, no individual acting as an employee or agent of the Bank, or as a member of the Board of Directors shall be personally liable to the Director or any other person for any claim, loss, liability or expense incurred in connection with the Agreement.

12.7 Gender. Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.

12.8 Effect on Other Corporate Benefit Agreements. Nothing contained in this Agreement shall affect the right of the Director to participate in or be covered by any qualified or non-qualified pension, profit sharing, group, bonus or other supplemental compensation or fringe benefit agreement constituting a part of the Bank’s existing or future compensation structure.

12.9 Suicide. Notwithstanding anything to the contrary in this Agreement, if the Director’s death results from Suicide, whether sane or insane, within twenty-six (26) months after execution of the Prior Agreement, all further Contributions to the Retirement Income Trust Fund shall thereupon cease, and no Contribution shall be made by the Bank to the Retirement Income Trust Fund in the year such death resulting from Suicide occurs (if not yet made). In such event, all benefits other than those available from previous Contributions to the Retirement Income Trust Fund under this Agreement shall be forfeited, and this Agreement shall become null and void. The balance of the Retirement Income Trust Fund, measured as of the Director’s date of death, shall be paid to the Beneficiary within thirty (30) days of the date the Administrator receives notice of the Director’s death.

12.10 Inurement. This Agreement shall be binding upon and shall inure to the benefit of the Bank, its successors and assigns, and the Director, his successors, heirs, executors, administrators, and Beneficiaries.

12.11 Headings. Headings and sub-headings in this Agreement are inserted for reference and convenience only and shall not be deemed a part of this Agreement.

12.12 Establishment of a Rabbi Trust. The Bank may establish a rabbi trust into which the Bank shall contribute assets which shall be held therein, subject to the claims of the Bank’s creditors in the event of the Bank’s “Insolvency” (as defined in such rabbi trust agreement), until the contributed assets are paid to the Director and/or his Beneficiary in such manner and at such times as specified in this Agreement. It is the intention of the Bank that the contribution or contributions to the rabbi trust, if any, shall provide the Bank with a source of funds to assist it in meeting the liabilities of this Agreement.

12.13 Source of Payments. All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank or the assets of the rabbi trust.

SECTION XIII

AMENDMENTS AND TERMINATION

13.1 Amendments. The Bank may amend this Agreement unilaterally by written action. Any amendment of the Agreement shall be made pursuant to a resolution of the Board of Directors of the Bank and shall be effective as of the date of such resolution. However, no amendment of the Agreement shall directly or indirectly deprive the Director of all or any portion of the Director’s Retirement Income Trust Fund as of the effective date of the resolution amending the Agreement.

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13.2 Plan Termination Generally. The Bank may terminate this Agreement unilaterally by written action. The benefit hereunder shall be the balance, if any, of the Retirement Income Trust Fund as of the date the Agreement is terminated. However, if such termination is done in anticipation of or pursuant to a Change in Control, such balance shall include the final Contribution made pursuant to Subsection 2.1(b)(2). Payment of the balance of the Retirement Income Trust Fund shall not be dependent upon the Director’s continued employment with the Bank following the termination date of the Agreement. Except as provided in Subsection 13.3, the termination of this Agreement shall not cause a distribution of benefits under this Agreement. Rather, after such termination benefit distributions will be made at the earliest distribution event permitted under Section III, Section IV, Section V or Section VI.

13.3 Plan Terminations Under Section 409A. Notwithstanding anything to the contrary in Subsection 13.2, the Bank may completely terminate and liquidate this Agreement and cause all benefits payable under the Agreement to be paid in a lump sum under the following circumstances and conditions, in each case provided that all of the applicable requirements of Treasury Regulation §1.409A-3(j)(4)(ix) are satisfied:

(a) The Bank or its successor may terminate and liquidate this Agreement by taking irrevocable action to terminate and liquidate this Agreement within the thirty (30) days preceding or the twelve (12) months following a Change in Control, provided that all arrangements sponsored by the Bank or its successor (or any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g)) immediately after the Change in Control which are treated as deferred under a single plan under Treasury Regulation §1.409A-1(c)(2) are terminated and liquidated with respect to each participant who experienced the Change in Control so that the Director and any participants in any such similar arrangements are required to receive all amounts of compensation payable under the terminated arrangements within twelve (12) months of the date of the irrevocable action to terminate the arrangements;

(b) The Bank may terminate and liquidate this Agreement within twelve (12) months of the Bank’s dissolution or with the approval of a bankruptcy court, provided that all benefits payable under the Agreement are included in the Director's gross income in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received): (i) the calendar year in which the Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practicable; or

(c) The Bank may terminate and liquidate this Agreement provided that: (i) the termination does not occur proximate to a downturn in the financial health of the Bank; (ii) all arrangements sponsored by the Bank that would be aggregated with any terminated arrangements under Treasury Regulation §1.409A-1(c) if the same service provider had deferrals of compensation under such arrangements are also terminated and liquidated; (iii) no payments, other than payments that would be payable under the terms of this Agreement if the termination had not occurred, are made within twelve (12) months of the date the Bank takes all necessary action to irrevocably terminate and liquidate this Agreement; (iv) all payments are made within twenty-four (24) months following the date the Bank takes all necessary action to irrevocably terminate and liquidate this Agreement; and (v) the Bank does adopt a new arrangement that would be aggregated with any terminated arrangement under Treasury Regulation §1.409A-1(c) if the same service provider participated in both arrangements, at any time within three (3) years following the date the Bank takes the irrevocable action to terminate and liquidate this Agreement, provided that all references in this clause (c) to the Bank shall include any affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g).

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SECTION XIV

EXECUTION

14.1 This Agreement and the Jerry McVicker Grantor Trust Agreement set forth the entire understanding of the parties hereto with respect to the transactions contemplated hereby, and any previous agreements or understandings between the parties hereto regarding the subject matter hereof, including the Director’s Shareholder Benefit Plan Agreement dated February 1, 2000, are merged into and superseded by this Agreement and the Jerry McVicker Grantor Trust Agreement.

14.2 This Agreement shall be executed in triplicate, each copy of which, when so executed and delivered, shall be an original, but all three copies shall together constitute one and the same instrument.

14.3 Trust Funding. Pursuant to requirements under the Pension Protection Act of 2006, the Bank shall not make contributions to the Retirement Income Trust Fund during any restricted period for purposes of paying deferred compensation of an applicable covered employee under a nonqualified deferred compensation plan of the Bank, or its affiliates, if the contribution would be treated as property transferred in connection with the performance of services under Internal Revenue Code Section 83, as provided in Internal Revenue Code Section 409A(b)(3).

14.4 Compliance with Code Section 409A. This Agreement shall be interpreted and administered consistent with Code Section 409A.

[Remainder of page left intentionally blank.]

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IN WITNESS WHEREOF, the Bank and the Director have caused this Agreement to be executed as of the date first written above.

MUTUALBANK

By

Title

Acknowledged:

Director:

JERRY MCVICKER

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CONDITIONS AND ASSUMPTIONS

1. The amount of the annual Contributions to the Retirement Income Trust has been based on a formula which is defined in Subsection 1.12.

2. Survivor’s Benefit means a monthly amount equal to Three Thousand Seven Hundred and Fifty Dollars ($3,750).

The definition of Survivor’s Benefit has been incorporated into the Agreement for the sole purpose of actuarially establishing the maximum amount of annual Contributions to the Retirement Income Trust Fund and is intended to be an amount equal to the highest annual board fees received by the Director during the twelve (12) month period prior to the Director’s Benefit Eligibility Date. The amount of any Survivor’s Benefit payable pursuant to the Agreement will be a function of (i) the amount and time of Contributions to the Retirement Income Trust Fund and (ii) the actual investment experience of such Contributions.

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DIRECTOR SUPPLEMENTAL RETIREMENT

INCOME AGREEMENT

BENEFICIARY DESIGNATION

The Director, under the terms of the Amended and Restated Director Shareholder Benefit Program Agreement executed by the Bank, dated the 21^st day of January, 2017, hereby designates the following Beneficiary(ies) to receive any guaranteed payments or death benefits under such Agreement, following his death:

PRIMARY BENEFICIARY:

SECONDARY BENEFICIARY:

This Beneficiary Designation hereby revokes any prior Beneficiary Designation which may have been in effect.

Such Beneficiary Designation is revocable.

DATE: January 21, 2017

WITNESS Director

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AMENDED DIRECTOR SHAREHOLDER BENEFIT PROGRAM AGREEMENT NOTICE OF ELECTION TO CHANGE FORM OF PAYMENT

TO: Bank:

Attention:

I hereby give notice of my election to change the form of payment of my Director Supplemental Retirement Income Benefit, as specified below. I understand that such notice, in order to be effective, must be submitted in accordance with the time requirements described in my Amended and Restated Director Shareholder Benefit Program Agreement.

¨ I hereby elect to change the form of payment of my benefits from monthly installments throughout my Payout Period to a lump sum benefit payment.

¨ I hereby elect to change the form of payment of my benefits from a lump sum benefit payment to monthly installments throughout my Payout Period. Such election hereby revokes my previous notice of election to receive a lump sum form of benefit payments.

Director

Date

Acknowledged:

By:

Title:

Date

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AMENDED AND RESTATED

DIRECTOR SHAREHOLDER BENEFIT PROGRAM AGREEMENT

APPENDIX I

The following no-load, no surrender charge life insurance policies are intended to comprise the hypothetical pool of life insurance, the increases in cash values of which are a component of the Contributions for each participant in the Amended and Restated Director Shareholder Benefit Program Agreement.

If such contracts for life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the below-described policies were purchased, or were not subsequently surrendered or lapsed. Such illustrations will be received from the insurance company and will indicate the increases in policy cash surrender values for purposes of calculating the Contributions to the Retirement Income Trust Fund.

In either case, references to life insurance contracts are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Director and their beneficiaries shall have no ownership interest in such policies and shall always have no greater interest in the benefits under this Plan than that of unsecured creditors of the Bank.

Life Insurance Company: Southland Life Insurance Company

Single Premium: One Million Three Hundred Thousand Dollars ($1,300,000)

Assumed Purchase Date: February 7, 2000

Assumed End Date: August 31, 2000

Assumed Resume Date: December 1, 2002

Life Insurance Company: Lincoln Benefit Life

Single Premium: Four Million Two Hundred Thousand Dollars ($4,200,000)

Assumed Purchase Date: February 7, 2000

Assumed End Date: August 31, 2000

Assumed Resume Date: December 1, 2002

Life Insurance Company: Life Investors Insurance Company of America

Single Premium: Five Million Five Hundred Thousand Dollars ($5,500,000)

Assumed Purchase Date: September 1, 2000

Assumed End Date: November 30, 2002

With respect to any death proceeds received from the above pool of insurance, the Bank is assumed to reinvest a portion of the death benefit equivalent to the policy’s Cash Surrender Value at the date of death, at an interest rate equivalent to the rate the remaining pool of insurance is earning. Such hypothetical investment is for the sole purpose of continuing to calculate the increases in cash surrender value in accordance with Subsection 1.12.

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EX-10.6

Exhibit 10.6

SECOND AMENDMENT

TO THE

MUTUALBANK

EXECUTIVE DEFERRED COMPENSATION MASTER AGREEMENT

DATED OCTOBER 1, 1993,

AS AMENDED OCTOBER 20, 2010

THIS SECOND AMENDMENT is adopted this 19th day of December, 2016, effective as of January 1, 2005, by and between MUTUALBANK, an Indiana commercial bank located in Muncie, Indiana and formerly known as Mutual Federal Savings Bank (the “Bank”), and certain key employees (the “Executive”).

The Bank and the Executives executed the Executive Deferred Compensation Master Agreement effective as of October 1, 1993, which was subsequently amended on October 20, 2010 (the “Agreement”).

The undersigned hereby amend the Agreement for the purpose of bringing the Agreement into compliance with Section 409A of the Internal Revenue Code (“Section 409A”). The amendments adopted herein shall be referred to as the “Second Amendment”.

The Section 409A Amendments shall apply only to those benefits under the Agreement that are subject to Section 409A (i.e., amounts that are deferred in taxable years after December 31, 2004, or amounts that were deferred in taxable years prior to January 1, 2005, with respect to which the Executive did not, as of December 31, 2004, have a legally binding right to be paid or the right to the amount was not earned and vested, all as determined in accordance with the regulations under Section 409A). With respect to benefits under this Agreement that are not subject to Section 409A (“Non-Section 409A Benefits”), the Agreement shall be applied as if the Second Amendment was never adopted. The intent of the preceding sentence is to ensure that Non-Section 409A Benefits are not subject to Section 409A (by virtue of a material modification or otherwise), and the Agreement shall be administered and interpreted accordingly.

Therefore, the following changes shall be made:

The following Subsection 1.7a shall be added to the Agreement immediately following Subsection 1.7:

1.7a “Company” means MutualFirst Financial, Inc., the parent holding company of the Bank, and any successor thereto.

Subsection 1.20b of the Agreement is hereby amended and restated to read in its entirety as follows:

1.20b “Specified Employee” means an individual who at the time of Termination of Service is a key employee of the Company or the Bank (or any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g)), if any stock of the Company or the Bank (or any other affiliated entities that are deemed to constitute a “service recipient”) is publicly traded on an established securities market or otherwise. For purposes of this Agreement, an individual is a key employee if the individual meets the requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with the regulations thereunder and disregarding Section 416(i)(5)) at any time during the 12-month period ending on December 31 (the “identification period”). If an Executive is a key employee during an identification period, the Executive is treated as a key employee for purposes of this Agreement during the twelve (12) month period that begins on the first day of April following the close of the identification period.

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Subsection 1.22a of the Agreement is hereby amended and restated to read in its entirety as follows:

1.22a “Termination of Employment” means termination of the Executive’s employment with the Bank (and any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(h)(3), including the Company) for any reason other than death or Disability. Whether a Termination of Employment has occurred is determined based on whether the facts and circumstances indicate that the Bank and the Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Executive would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the Bank if the Executive has been providing services to the Bank less than thirty-six (36) months).

Subsection 5.3 of the Agreement is hereby amended and restated to read in its entirety as follows:

5.3 Termination For Cause. In the event the Executive is terminated for Cause at any time prior to reaching his Benefit Age, he shall be entitled to receive the balance of his Elective Contribution Account measured as of the date of the Termination of Employment for Cause. Such amount shall be paid in a lump sum within thirty (30) days of the Executive’s Termination of Employment for Cause, subject to Section 5.4 of this Agreement. He shall not be entitled to any portion of his Matching Contribution Account. All other benefits for the Executive or his Beneficiary under this Agreement shall be forfeited and the Agreement shall become null and void.

Subsection 12.1(1) of the Agreement is hereby amended and restated to read in its entirety as follows:

(1) The Bank’s Board of Directors may terminate the Executive’s employment at any time, but any termination by the Bank’s Board of Directors other than termination for Cause shall not prejudice the Executive’s vested right to compensation or other benefits under the Agreement. As provided in Section 5.3, the Executive shall be paid the balance of his Elective Contribution Account in a lump sum within thirty (30) days of his Termination of Employment for Cause, subject to Section 5.4 of this Agreement. He shall have no right to receive additional compensation or other benefits for any period after termination for Cause.

Section 13.3 of the Agreement is hereby amended and restated to read in its entirety as follows:

13.3 Plan Terminations Under Section 409A. Notwithstanding anything to the contrary in Subsection 13.2, the Bank may completely terminate and liquidate this Agreement and cause all benefits payable under the Agreement to be paid in a lump sum under the following circumstances and conditions, in each case provided that all of the applicable requirements of Treasury Regulation §1.409A-3(j)(4)(ix) are satisfied:

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(a) The Bank or its successor may terminate and liquidate this Agreement by taking irrevocable action to terminate and liquidate this Agreement within the thirty (30) days preceding or the twelve (12) months following a Change in Control, provided that all arrangements sponsored by the Bank or its successor (or any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g)) immediately after the Change in Control which are treated as deferred under a single plan under Treasury Regulation §1.409A-1(c)(2) are terminated and liquidated with respect to each participant who experienced the Change in Control so that each Executive and any participants in any such similar arrangements are required to receive all amounts of compensation payable under the terminated arrangements within twelve (12) months of the date of the irrevocable action to terminate the arrangements;

(b) The Bank may terminate and liquidate this Agreement within twelve (12) months of the Bank’s dissolution or with the approval of a bankruptcy court, provided that all benefits payable under the Agreement are included in each Executive's gross income in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received): (i) the calendar year in which the Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practicable; or

(c) The Bank may terminate and liquidate this Agreement provided that: (i) the termination does not occur proximate to a downturn in the financial health of the Bank; (ii) all arrangements sponsored by the Bank that would be aggregated with any terminated arrangements under Treasury Regulation §1.409A-1(c) if the same service provider had deferrals of compensation under such arrangements are also terminated and liquidated; (iii) no payments, other than payments that would be payable under the terms of this Agreement if the termination had not occurred, are made within twelve (12) months of the date the Bank takes all necessary action to irrevocably terminate and liquidate this Agreement; (iv) all payments are made within twenty-four (24) months following the date the Bank takes all necessary action to irrevocably terminate and liquidate this Agreement; and (v) the Bank does adopt a new arrangement that would be aggregated with any terminated arrangement under Treasury Regulation §1.409A-1(c) if the same service provider participated in both arrangements, at any time within three (3) years following the date the Bank takes the irrevocable action to terminate and liquidate this Agreement, provided that all references in this clause (c) to the Bank shall include any affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g).

Subsection 14.4 of the Agreement is hereby amended and restated to read in its entirety as follows:

14.4 Compliance with Code Section 409A. With respect to Section 409A Benefits only, this Agreement shall be interpreted and administered consistent with Code Section 409A. With respect to amounts payable under this Agreement that are not Section 409A Benefits (“Non-Section 409A Benefits”), Code Section 409A shall not apply. Accordingly, with respect to Non-Section 409A Benefits, this Agreement shall be applied as if the changes made by the First Amendment and the Second Amendment hereto (and any other provision adopted specifically to comply with Code Section 409A), and any other provisions that would result in a material modification of the Non-Section 409A Benefits were never adopted.

(Remainder of this page intentionally left blank)

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IN WITNESS OF THE ABOVE, the Bank and Executives hereby consent to this Second Amendment.

EXECUTIVES:	MUTUALBANK
	By
Patrick C. Botts
	Title
Steven Campbell
David W. Heeter
Stephen C. Selby

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EX-10.9

Exhibit 10.9

Director Fee Arrangements in 2016

Each director of MutualFirst Financial, Inc. (the “Company”) also is a director of MutualBank. In 2016, each non-employee director received an annual fee of $31,500 for serving on MutualBank’s Board of Directors as well as a Board meeting fee of $400 per Audit Committee meeting attended and $200 for all other committee meetings attended. In addition to this annual fee, Wilbur R. Davis received a $10,000 annual fee for serving as Chairman of the Board of Directors, Linn Crull received a $5,000 annual fee for serving as Chairman of the Audit Committee, Jerry McVicker received a $3,000 annual fee for serving as Chairman of the Compensation Committee and Jon Kintner and William Hughes each received half of the annual $3,000 fee for serving as Chairman of the Wealth Management Committee for a six month period. Directors are not compensated for their service on the Company’s Board of Directors.

MutualBank maintains deferred compensation arrangements with some directors that previously allowed them to defer all or a portion of their Board fees in order to receive income when they are no longer active directors. Previously deferred amounts earn interest at the rate of 10 percent per year.

EX-10.10

Exhibit 10.10

FIFTH AMENDMENT

TO THE

MUTUALBANK

DIRECTOR DEFERRED COMPENSATION MASTER AGREEMENT

DATED SEPTEMBER 1, 1993,

AS AMENDED NOVEMBER 24, 1993,

DECEMBER 18, 1996,

MAY 15, 1998,

AND OCTOBER 20, 2010

THIS FIFTH AMENDMENT is adopted this 30th day of December, 2016, effective as of January 1, 2005, by and between MUTUALBANK, an Indiana commercial bank located in Muncie, Indiana and formerly known as Mutual Federal Savings Bank (the “Bank”), and certain eligible Directors (the “Director”).

The Bank and the Directors executed the Director Deferred Compensation Master Agreement effective as of September 1, 1993, and executed a First Amendment on November 24, 1993, a Second Amendment on December 18, 1996, a Third Amendment on May 15, 1998 and a Fourth Amendment on October 20, 2010 (the “Agreement”).

The undersigned hereby amend the Agreement for the purpose of bringing the Agreement into compliance with Section 409A of the Internal Revenue Code (“Section 409A”). The amendments adopted herein shall be referred to as the “Fifth Amendment”.

The Fifth Amendment shall apply only to those benefits under the Agreement that are subject to Section 409A (i.e., amounts that are deferred in taxable years after December 31, 2004, or amounts that were deferred in taxable years prior to January 1, 2005, with respect to which the Director did not, as of December 31, 2004, have a legally binding right to be paid or the right to the amount was not earned and vested, all as determined in accordance with the regulations under Section 409A). With respect to benefits under this Agreement that are not subject to Section 409A (“Non-Section 409A Benefits”), the Agreement shall be applied as if the Fifth Amendment was never adopted.   The intent of the preceding sentence is to ensure that Non-Section 409A Benefits are not subject to Section 409A (by virtue of a material modification or otherwise), and the Agreement shall be administered and interpreted accordingly.

Therefore, the following changes shall be made:

The following Subsection 1.6a shall be added to the Agreement immediately following Subsection 1.6:

1.6a “Company” means MutualFirst Financial, Inc., the parent holding company of the Bank, and any successor thereto.

Subsection 1.16b of the Agreement is hereby amended and restated to read in its entirety as follows:

1.16b “Specified Employee” means an individual who at the time of Termination of Service is a key employee of the Company or the Bank (or any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g)), if any stock of the Company or the Bank (or any other affiliated entities that are deemed to constitute a “service recipient”) is publicly traded on an established securities market or otherwise. For purposes of this Agreement, an individual is a key employee if the individual meets the requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with the regulations thereunder and disregarding Section 416(i)(5)) at any time during the 12-month period ending on December 31 (the “identification period”). If a Director is a key employee during an identification period, the Director is treated as a key employee for purposes of this Agreement during the twelve (12) month period that begins on the first day of April following the close of the identification period.

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Subsection 1.19 of the Agreement is hereby amended and restated to read in its entirety as follows:

1.19 “Termination of Service” means the termination of the Director’s service with the Bank (and any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(h)(3), including the Company) for any reason other than death or Disability. Whether a Termination of Service takes place is determined in accordance with the requirements of Code Section 409A and related Treasury guidance or Regulations based on the facts and circumstances surrounding the termination of the Director’s service.

Subsection 4.3 of the Agreement is hereby amended and restated to read in its entirety as follows:

4.3 Removal For Cause. In the event the Director is removed for Cause at any time prior to reaching his Benefit Age, he shall be entitled to receive the balance of his Elective Contribution Account, measured as of the date of Termination of Service for Cause. Such amount shall be paid in a lump sum within thirty (30) days of the Director’s date of Termination of Service for Cause, subject to Section 4.4 of this Agreement. All other benefits provided for the Director or his Beneficiary under this Agreement shall be forfeited and the Agreement shall become null and void.

Subsection 11.1(1) of the Agreement is hereby amended and restated to read in its entirety as follows:

(1) The Bank’s Board of Directors may remove the Director at any time, but any removal by the Bank’s Board of Directors other than removal for Cause shall not prejudice the Director’s vested right to compensation or other benefits under the Agreement. As provided in Section 4.3, the Director shall be paid the balance of his Elective Contribution Account in a lump sum within thirty (30) days of his Termination of Service for Cause, subject to Section 4.4 of this Agreement. He shall have no right to receive additional compensation or other benefits for any period after removal for Cause.

Section 12.3 of the Agreement is hereby amended and restated to read in its entirety as follows:

12.3 Plan Terminations Under Section 409A. Notwithstanding anything to the contrary in Subsection 13.2, the Bank may completely terminate and liquidate this Agreement and cause all benefits payable under the Agreement to be paid in a lump sum under the following circumstances and conditions, in each case provided that all of the applicable requirements of Treasury Regulation §1.409A-3(j)(4)(ix) are satisfied:

(a) The Bank or its successor may terminate and liquidate this Agreement by taking irrevocable action to terminate and liquidate this Agreement within the thirty (30) days preceding or the twelve (12) months following a Change in Control, provided that all arrangements sponsored by the Bank or its successor (or any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g)) immediately after the Change in Control which are treated as deferred under a single plan under Treasury Regulation §1.409A-1(c)(2) are terminated and liquidated with respect to each participant who experienced the Change in Control so that each Director and any participants in any such similar arrangements are required to receive all amounts of compensation payable under the terminated arrangements within twelve (12) months of the date of the irrevocable action to terminate the arrangements;

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(b) The Bank may terminate and liquidate this Agreement within twelve (12) months of the Bank’s dissolution or with the approval of a bankruptcy court, provided that all benefits payable under the Agreement are included in each Director's gross income in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received): (i) the calendar year in which the Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practicable; or

(c) The Bank may terminate and liquidate this Agreement provided that: (i) the termination does not occur proximate to a downturn in the financial health of the Bank; (ii) all arrangements sponsored by the Bank that would be aggregated with any terminated arrangements under Treasury Regulation §1.409A-1(c) if the same service provider had deferrals of compensation under such arrangements are also terminated and liquidated; (iii) no payments, other than payments that would be payable under the terms of this Agreement if the termination had not occurred, are made within twelve (12) months of the date the Bank takes all necessary action to irrevocably terminate and liquidate this Agreement; (iv) all payments are made within twenty-four (24) months following the date the Bank takes all necessary action to irrevocably terminate and liquidate this Agreement; and (v) the Bank does adopt a new arrangement that would be aggregated with any terminated arrangement under Treasury Regulation §1.409A-1(c) if the same service provider participated in both arrangements, at any time within three (3) years following the date the Bank takes the irrevocable action to terminate and liquidate this Agreement, provided that all references in this clause (c) to the Bank shall include any affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g).

Subsection 13.3 of the Agreement is hereby amended and restated to read in its entirety as follows:

13.3 Compliance with Code Section 409A. With respect to Section 409A Benefits only, this Agreement shall be interpreted and administered consistent with Code Section 409A. With respect to amounts payable under this Agreement that are not Section 409A Benefits (“Non-Section 409A Benefits”), Code Section 409A shall not apply. Accordingly, with respect to Non-Section 409A Benefits, this Agreement shall be applied as if the changes made by the Fourth Amendment and the Fifth Amendment hereto (and any other provision adopted specifically to comply with Code Section 409A), and any other provisions that would result in a material modification of the Non-Section 409A Benefits were never adopted.

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IN WITNESS OF THE ABOVE, the Bank and Directors hereby consent to this Fifth Amendment.

MUTUALBANK

By

Title

Linn Crull

Wil Davis

James D. Rosema

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EX-10.15

Exhibit 10.15

MUTUALBANK

AMENDED AND RESTATED SALARY CONTINUATION AGREEMENT

THIS AMENDED AND RESTATED SALARY CONTINUATION AGREEMENT (this “Agreement”) effective as of the 20^th day of December 2016, amends and restates the Salary Continuation Agreement originally dated September 18, 2007 (the “Prior Agreement”) between MUTUALBANK (as successor to MFB Financial), an Indiana commercial bank (the “Bank”), and CHARLES J. VIATER (the “Executive”).

The purpose of this Agreement is to provide specified benefits to the Executive, a member of a select group of management or highly compensated employees who contribute materially to the continued growth, development and future business success of the Bank. This Agreement shall be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended from time to time.

WHEREAS, the Board of Directors of the Bank believe it is in the best interests of the Bank to restate the Prior Agreement with the Executive in order to ensure compliance with Section 409A of the Code; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement effective as of the date first written above.

Article 1

Definitions

Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

1.1 “Accrual Balance” means the liability that should be accrued by the Bank, under generally accepted accounting principles (“GAAP”), for the Bank’s obligation to the Executive under this Agreement, by applying Accounting Principles Board Opinion Number 12 (“APB 12”) as amended by Statement of Financial Accounting Standards Number 106 (“FAS 106”) and the Discount Rate. Unless otherwise specified herein, any one of a variety of amortization methods may be used to determine the Accrual Balance. However, once chosen, the method must be consistently applied.

1.2 “Beneficiary” means each designated person or entity, or the estate of the deceased Executive, entitled to any benefits upon the death of the Executive pursuant to Article 4.

1.3 “Beneficiary Designation Form” means the form established from time to time by the Plan Administrator that the Executive completes, signs and returns to the Plan Administrator to designate one or more Beneficiaries.

1.4 “Board” means the Board of Directors of the Bank as from time to time constituted.

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1.5 “Change in Control” means 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.

1.6 “Code” means the Internal Revenue Code of 1986, as amended, and all regulations and guidance thereunder, including such regulations and guidance as may be promulgated after the Effective Date.

1.7 “Company” means MutualFirst Financial, Inc., the holding company of the Bank, and any successor thereto.

1.8 “Disability” means the Executive: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees or directors of the Bank.   Medical determination of Disability may be made by either the Social Security Administration or by the provider of disability insurance covering employees or directors of the Bank provided that the definition of “disability” applied under such insurance program complies with the requirements of the preceding sentence. Upon the request of the Plan Administrator, the Executive must submit proof to the Plan Administrator of the Social Security Administration’s or the provider’s determination.

1.9 “Discount Rate” means the rate used by the Plan Administrator for determining the Accrual Balance. The initial Discount Rate upon adoption of the Prior Agreement was six percent (6.0%). However, the Plan Administrator, in its discretion, may adjust the Discount Rate to maintain the rate within reasonable standards according to GAAP and/or applicable bank regulatory guidance.

1.10 “Early Termination” means the Executive’s Separation from Service before attainment of Normal Retirement Age except when such Separation from Service occurs within twenty four (24) months following a Change in Control, as a result of a Termination for Cause, or as a result of Executive’s voluntary Separation from Service as a result of his resignation.

1.11 “Effective Date” of this Agreement as amended and restated means the date first written above.

1.12 “Normal Retirement Age” means the Executive’s sixtieth (60th) birthday.

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1.13 “Plan Administrator” means the Board or such committee or person as the Board shall appoint.

1.14 “Plan Year” means each twelve (12) month period commencing on September 1 and ending on August 31 of each year.

1.15 “Separation from Service” means a cessation or reduction in the Executive’s services for the Bank (and any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(h)(3), including the Company) 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), for any reason other than death or Disability. Whether a Separation from Service has occurred is determined based on whether the facts and circumstances indicate that the Bank and the Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Executive would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than fifty percent (50%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period.

1.16 “Specified Employee” means an individual who at the time of Separation from Service is a key employee of the Bank (or any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g), including the Company), if any stock of the Company or the Bank (or any other affiliated entities that are deemed to constitute a “service recipient”) is publicly traded on an established securities market or otherwise. For purposes of this Agreement, an individual is a key employee if the individual meets the requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with the regulations thereunder and disregarding Section 416(i)(5)) at any time during the 12-month period ending on December 31 (the “identification period”). If the Executive is a key employee during an identification period, the Executive is treated as a key employee for purposes of this Agreement during the twelve (12) month period that begins on the first day of April following the close of the identification period.

1.17 “Termination for Cause” means Separation from Service for: (i) personal dishonesty, (ii) incompetence, (iii) willful misconduct, (iv) breach of fiduciary duty involving personal profit, (v) intentional failure to perform stated duties, (vi) willful violation of any law, rule, or regulation (other than   traffic violations or   similar offenses) or   final cease-and-desist order, or (vii) any material breach of any term, condition or covenant of this Agreement.

Article 2

Distributions During Lifetime

2.1 Normal Retirement Benefit. Upon Separation from Service after attaining Normal Retirement Age, the Bank shall distribute to the Executive the benefit described in this Section 2.1 in lieu of any other benefit under this Article.

2.1.1 Amount of Benefit. The benefit under this Section 2.1 is an Accrual Balance needed to support an annual payment for fifteen (15) years of Sixty Thousand Dollars ($60,000) beginning at Normal Retirement Age. For every Plan Year or portion thereof from Normal Retirement Age until Separation from Service, the Accrual Balance shall be increased by the Discount Rate.

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2.1.2 Distribution of Benefit. The Bank shall distribute the benefit to the Executive in one hundred eighty (180) equal monthly installments commencing on the first day of the month following Separation of Service, subject to Section 2.6 of this Agreement.

2.2 Resignation. If Executive resigns resulting in a voluntary Separation from Service prior to reaching his Normal Retirement Age, the Bank shall distribute to the Executive the benefit described in this Section 2.2 in lieu of any other benefit under this Article.

2.2.1 Amount of Benefit. The benefit under this Section 2.2 is one hundred percent (100%) of the Accrual Balance determined as of the end of the month preceding Separation from Service.

2.2.2 Distribution of Benefit. The Bank shall distribute the benefit to the Executive in thirty-six (36) equal monthly installments commencing within sixty (60) days following Separation from Service, subject to Section 2.6 of this Agreement.

2.3 Early Termination Benefit. If Early Termination occurs, the Bank shall distribute to the Executive the benefit described in this Section 2.3 in lieu of any other benefit under this Article.

2.3.1 Amount of Benefit. The benefit under this Section 2.3 is the present value of one hundred percent (100%) of the Normal Retirement Benefit amount described in Section 2.1.1, computed using the actuarial factors that would be used to compute the present value of benefits under Section 280G of the Code.

2.3.2 Distribution of Benefit. The Bank shall distribute the benefit to the Executive in thirty-six (36) equal monthly installments commencing within sixty (60) days following Separation from Service, subject to Section 2.6 of this Agreement.

2.4 Disability Benefit. If the Executive experiences a Disability prior to Normal Retirement Age, the Bank shall distribute to the Executive the benefit described in this Section 2.3 in lieu of any other benefit under this Article.

2.4.1 Amount of Benefit. The benefit under this Section 2.3 is one hundred percent (100%) of the Accrual Balance determined as of the end of the month preceding such Disability.

2.4.2 Distribution of Benefit. The Bank shall distribute the benefit to the Executive in one hundred eighty (180) equal monthly installments commencing on the first day of the month following determination of Disability.

2.5 Change in Control Benefit. If a Change in Control occurs followed within twenty-four (24) months by Separation from Service prior to Normal Retirement Age, the Bank shall distribute to the Executive the benefit described in this Section 2.5 in lieu of any other benefit under this Article.

2.5.1 Amount of Benefit. The benefit under this Section 2.5 is the present value of one hundred percent (100%) of the Normal Retirement Benefit amount described in Section 2.1.1, computed using the actuarial factors that would be used to compute the present value of benefits under Section 280G of the Code.

2.5.2 Distribution of Benefit. The Bank shall distribute the benefit to the Executive in a lump sum within sixty (60) days following Separation from Service, subject to Section 2.6 of this Agreement.

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2.5.3 Parachute Payments. Notwithstanding any provision of this Agreement to the contrary, and to the extent allowed by Code Section 409A, if any benefit payment under this Section 2.5 would be treated as an “excess parachute payment” under Code Section 280G, the Bank shall reduce such benefit payment to the extent necessary to avoid treating such benefit payment as an excess parachute payment.

2.6 Restriction on Commencement of Distributions. Notwithstanding any provision of this Agreement to the contrary, if the Executive is considered a Specified Employee, the provisions of this Section 2.6 shall govern all distributions hereunder. If benefit distributions which would otherwise be made to the Executive due to Separation from Service are limited because the Executive is a Specified Employee, then such distributions shall not be made during the first six (6) months following Separation from Service. Rather, any distribution which would otherwise be paid to the Executive during such period shall be accumulated and paid to the Executive in a lump sum on the first day of the seventh month following Separation from Service. All subsequent distributions shall be paid in the manner specified.

2.7 Distributions Upon Taxation of Amounts Deferred. If, pursuant to Code Section 409A, the Federal Insurance Contributions Act or other state, local or foreign tax, the Executive becomes subject to tax on the amounts deferred hereunder, then the Bank may make a limited distribution to the Executive in a manner that conforms to the requirements of Code section 409A. Any such distribution will decrease the Executive’s benefits distributable under this Agreement.

2.8 Change in Form or Timing of Distributions. For distribution of benefits under this Article 2, the Executive and the Bank may, subject to the terms of Section 8.1, amend this Agreement to delay the timing or change the form of distributions. Any such amendment:

(a) may not accelerate the time or schedule of any distribution, except as provided in Code Section 409A;

(b) must, for benefits distributable under Sections 2.1, 2.2 and 2.3, delay the commencement of distributions for a minimum of five (5) years from the date the first distribution was originally scheduled to be made; and

(c) must take effect not less than twelve (12) months after the amendment is made.

Article 3

Distribution at Death

3.1 Death During Active Service. If the Executive dies prior to Separation from Service, the Bank shall distribute to the Beneficiary the benefit described in this Section 3.1.   This benefit shall be distributed in lieu of any benefit under Article 2.

3.1.1 Amount of Benefit. The benefit under this Section 3.1 is the Normal Retirement Benefit amount described in Section 2.1.1.

3.1.2 Distribution of Benefit.   The Bank shall distribute the annual benefit to the Beneficiary in twelve (12) equal monthly installments for fifteen (15) years commencing on the first day of the fourth month following the Executive’s death. The Beneficiary shall be required to provide the Executive’s death certificate to the Bank.

3.2 Death During Distribution of a Benefit. If the Executive dies after any benefit distributions have commenced under this Agreement but before receiving all such distributions, the Bank shall distribute to the Beneficiary the remaining benefits at the same time and in the same amounts they would have been distributed to the Executive had the Executive survived.

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3.3 Death Before Benefit Distributions Commence. If the Executive is entitled to benefit distributions under this Agreement but dies prior to the date that commencement of said benefit distributions are scheduled to be made under this Agreement, the Bank shall distribute to the Beneficiary the same benefits to which the Executive was entitled prior to death, except that the benefit distributions shall be paid in the manner specified in Section 3.1.2 and shall commence on the first day of the fourth month following the Executive’s death.

Article 4

Beneficiaries

4.1 In General. The Executive shall have the right, at any time, to designate a Beneficiary to receive any benefit distributions under this Agreement upon the death of the Executive. The Beneficiary designated under this Agreement may be the same as or different from the beneficiary designated under any other plan of the Bank in which the Executive participates.

4.2 Designation. The Executive shall designate a Beneficiary by completing and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its designated agent. If the Executive names someone other than the Executive’s spouse as a Beneficiary, the Plan Administrator may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the Plan Administrator, executed by the Executive’s spouse and returned to the Plan Administrator.   The Executive’s beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Plan Administrator’s rules and procedures. Upon the acceptance by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled.   The Plan Administrator shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator prior to the Executive’s death.

4.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Plan Administrator or its designated agent.

4.4 No Beneficiary Designation. If the Executive dies without a valid beneficiary designation, or if all designated Beneficiaries predecease the Executive, then the Executive’s spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, any benefit shall be paid to the Executive’s estate.

4.5 Facility of Distribution.   If the Plan Administrator determines in its discretion that a benefit is to be distributed to a minor, to a person declared incompetent or to a person incapable of handling the disposition of that person’s property, the Plan Administrator may direct distribution of such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Plan Administrator may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Any distribution of a benefit shall be a distribution for the account of the Executive and the Beneficiary, as the case may be, and shall completely discharge any liability under this Agreement for such distribution amount.

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Article 5

General Limitations

5.1 Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Bank shall not distribute any benefit under this Agreement if the Executive’s employment with the Bank is terminated by the Bank or an applicable regulator due to a Termination for Cause.

5.2 Suicide or Misstatement. No benefit shall be distributed if the Executive commits suicide within two (2) years after the effective date of the Prior Agreement, or if an insurance company which issued a life insurance policy covering the Executive and owned by the Bank denies coverage (i) for material misstatements of fact made by the Executive on an application for such life insurance, or (ii) for any other reason.

5.3 Removal. Notwithstanding any provision of this Agreement to the contrary, the Bank shall not distribute any benefit under this Agreement if the Executive is subject to a final removal or prohibition order issued by an appropriate federal banking agency pursuant to Section 8(e) of the Federal Deposit Insurance Act. Notwithstanding anything herein to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 U.S.C. 1828 and FDIC Regulation 12 CFR Part 359, Golden Parachute Indemnification Payments and any other regulations or guidance promulgated thereunder.

Article 6

Administration of Agreement

6.1 Plan Administrator Duties.   The Plan Administrator shall administer this Agreement according to its express terms and shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Agreement and (ii) decide or resolve any and all questions, including interpretations of this Agreement, as may arise in connection with this Agreement to the extent the exercise of such discretion and authority does not conflict with Code Section 409A.

6.2 Agents.   In the administration of this Agreement, the Plan Administrator may employ agents and delegate to them such administrative duties as the Plan Administrator sees fit, including acting through a duly appointed representative, and may from time to time consult with counsel who may be counsel to the Bank.

6.3 Binding Effect of Decisions. Any decision or action of the Plan Administrator with respect to any question arising out of or in connection with the administration, interpretation or application of this Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in this Agreement.

6.4 Indemnity of Plan Administrator. The Bank shall indemnify and hold harmless the Plan Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Plan Administrator.

6.5 Bank Information. To enable the Plan Administrator to perform its functions, the Bank shall supply full and timely information to the Plan Administrator on all matters relating to the date and circumstances of the Executive’s death, Disability or Separation from Service, and such other pertinent information as the Plan Administrator may reasonably require.

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6.6 Annual Statement. The Plan Administrator shall provide to the Executive, within one hundred twenty (120) days after the end of each Plan Year, a statement setting forth the benefits to be distributed under this Agreement.

Article 7

Claims And Review Procedures

7.1 Claims Procedure. An Executive or Beneficiary (“claimant”) who has not received benefits under this Agreement that he or she believes should be distributed shall make a claim for such benefits as follows:

7.1.1 Initiation - Written Claim. The claimant initiates a claim by submitting to the Plan Administrator a written claim for the benefits. If such a claim relates to the contents of a notice received by the claimant, the claim must be made within sixty (60) days after such notice was received by the claimant. All other claims must be made within one hundred eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the claimant.

7.1.2 Timing of Plan Administrator Response. The Plan Administrator shall respond to such claimant within ninety (90) days after receiving the claim. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional ninety (90) days by notifying the claimant in writing, prior to the end of the initial ninety (90) day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.

7.1.3 Notice of Decision. If the Plan Administrator denies part or all of the claim, the Plan Administrator shall notify the claimant in writing of such denial. The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

(a) The specific reasons for the denial;

(b) A reference to the specific provisions of this Agreement on which the denial is based;

(c) A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed;

(d) An explanation of this Agreement’s review procedures and the time limits applicable to such procedures; and

(e) A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

7.2 Review Procedure. If the Plan Administrator denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Plan Administrator of the denial as follows:

7.2.1 Initiation - Written Request. To initiate the review, the claimant, within sixty (60) days after receiving the Plan Administrator’s notice of denial, must file with the Plan Administrator a written request for review.

7.2.2 Additional Submissions- Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

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7.2.3 Considerations on Review.   In considering the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

7.2.4 Timing of Plan Administrator Response. The Plan Administrator shall respond in writing to such claimant within sixty (60) days after receiving the request for review. If the Plan Administrator determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the response period by an additional sixty (60) days by notifying the claimant in writing, prior to the end of the initial sixty (60) day period, that an additional period is required.   The notice of extension must set forth the special circumstances and the date by which the Plan Administrator expects to render its decision.

7.2.5 Notice of Decision. The Plan Administrator shall notify the claimant in writing of its decision on review.   The Plan Administrator shall write the notification in a manner calculated to be understood by the claimant.   The notification shall set forth:

(a) The specific reasons for the denial;

(b) A reference to the specific provisions of this Agreement on which the denial is based;

(c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits; and

(d) A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

Article 8

Amendments and Termination

8.1 Amendments. This Agreement may be amended only by a written agreement signed by the Bank and the Executive. However, the Bank may unilaterally amend this Agreement to conform with written directives to the Bank from its auditors or banking regulators or to comply with legislative changes or tax law, including without limitation Code Section 409A.

8.2 Plan Termination Generally.   This Agreement may be terminated only by a written agreement signed by the Bank and the Executive.   The benefit shall be the Accrual Balance as of the date this Agreement is terminated. Except as provided in Section 8.3, the termination of this Agreement shall not cause a distribution of benefits under this Agreement. Rather, upon such termination benefit distributions will be made at the earliest distribution event permitted under Article 2 or Article 3.

8.3 Plan Terminations Under Code Section 409A. Notwithstanding anything to the contrary in Section 8.2, the Bank may completely terminate and liquidate this Agreement and cause all benefits payable under the Agreement to be paid in a lump sum under the following circumstances and conditions, in each case provided that all of the applicable requirements of Treasury Regulation §1.409A-3(j)(4)(ix) are satisfied:

9

(a) The Bank or its successor may terminate and liquidate this Agreement by taking irrevocable action to terminate and liquidate this Agreement within the thirty (30) days preceding or the twelve (12) months following a Change in Control, provided that all arrangements sponsored by the Bank or its successor (or any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g)) immediately after the Change in Control which are treated as deferred under a single plan under Treasury Regulation §1.409A-1(c)(2) are terminated and liquidated with respect to each participant who experienced the Change in Control so that the Executive and any participants in any such similar arrangements are required to receive all amounts of compensation payable under the terminated arrangements within twelve (12) months of the date of the irrevocable action to terminate the arrangements;

(b) The Bank may terminate and liquidate this Agreement within twelve (12) months of the Bank’s dissolution or with the approval of a bankruptcy court, provided that all benefits payable under the Agreement are included in the Executive's gross income in the latest of the following years (or, if earlier, the taxable year in which the amount is actually or constructively received): (i) the calendar year in which the Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practicable; or

(c) The Bank may terminate and liquidate this Agreement provided that: (i) the termination does not occur proximate to a downturn in the financial health of the Bank; (ii) all arrangements sponsored by the Bank that would be aggregated with any terminated arrangements under Treasury Regulation §1.409A-1(c) if the same service provider had deferrals of compensation under such arrangements are also terminated and liquidated; (iii) no payments, other than payments that would be payable under the terms of this Agreement if the termination had not occurred, are made within twelve (12) months of the date the Bank takes all necessary action to irrevocably terminate and liquidate this Agreement; (iv) all payments are made within twenty-four (24) months following the date the Bank takes all necessary action to irrevocably terminate and liquidate this Agreement; and (v) the Bank does adopt a new arrangement that would be aggregated with any terminated arrangement under Treasury Regulation §1.409A-1(c) if the same service provider participated in both arrangements, at any time within three (3) years following the date the Bank takes the irrevocable action to terminate and liquidate this Agreement, provided that all references in this clause (c) to the Bank shall include any affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation §1.409A-1(g).

Article 9

Miscellaneous

9.1 Binding Effect. This Agreement shall bind the Executive and the Bank and their beneficiaries, survivors, executors, administrators and transferees.

9.2 No Guarantee of Employment. This Agreement is not a contract for employment. It does not give the Executive the right to remain as an employee of the Bank nor interfere with the Bank’s right to discharge the Executive. It does not require the Executive to remain an employee nor interfere with the Executive’s right to terminate employment at any time.

9.3 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

9.4 Tax Withholding and Reporting. The Bank shall withhold any taxes that are required to be withheld, including but not limited to taxes owed under Code Section 409A from the benefits provided under this Agreement. The Executive acknowledges that the Bank’s sole liability regarding taxes is to forward any amounts withheld to the appropriate taxing authorities. The Bank shall satisfy all applicable reporting requirements, including those under Code Section 409A.

10

9.5 Applicable Law. This Agreement and all rights hereunder shall be governed by the laws of the State of Indiana, except to the extent preempted by the laws of the United States of America.

9.6 Unfunded Arrangement. The Executive and the Beneficiary are general unsecured creditors of the Bank for the distribution of benefits under this Agreement. The benefits represent the mere promise by the Bank to distribute such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors.   Any insurance on the Executive’s life or other informal funding asset is a general asset of the Bank to which the Executive and Beneficiary have no preferred or secured claim.

9.7 Reorganization. The Bank shall not merge or consolidate into or with another bank, or reorganize, or sell substantially all of its assets to another bank, firm or person unless such succeeding or continuing bank, firm or person agrees to assume and discharge the obligations of the Bank under this Agreement. Upon the occurrence of such an event, the term “Bank” as used in this Agreement shall be deemed to refer to the successor or survivor entity.

9.8 Entire Agreement. This Agreement constitutes the entire agreement between the Bank and the Executive as to the subject matter hereof and supersedes the Prior Agreement. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.

9.9 Interpretation. Wherever the fulfillment of the intent and purpose of this Agreement requires and the context will permit, the use of the masculine gender includes the feminine and use of the singular includes the plural.

9.10 Alternative Action. In the event it shall become impossible for the Bank or the Plan Administrator to perform any act required by this Agreement due to regulatory or other constraints, the Bank or Plan Administrator may perform such alternative act as most nearly carries out the intent and purpose of this Agreement and is in the best interests of the Bank, provided that such alternative act does not violate Code Section 409A.

9.11 Headings. Article and section headings are for convenient reference only and shall not control or affect the meaning or construction of any provision herein.

9.12 Validity. If any provision of this Agreement shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Agreement shall be construed and enforced as if such illegal or invalid provision had never been included herein.

9.13 Notice. Any notice or filing required or permitted to be given to the Bank or Plan Administrator under this Agreement shall be sufficient if in writing and hand-delivered or sent by registered or certified mail to the address below:

MutualBank

110 E. Charles Street

Muncie, IN 47305-2419

Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

11

Any notice or filing required or permitted to be given to the Executive under this Agreement shall be sufficient if in writing and hand-delivered or sent by mail to the last known address of the Executive.

9.14 Deduction Limitation on Benefit Payments. If the Bank reasonably anticipates that the Bank’s deduction with respect to any distribution under this Agreement would be limited or eliminated by application of Code Section 162(m), then to the extent deemed necessary by the Bank to ensure that the entire amount of any distribution from this Agreement is deductible, the Bank may delay payment of any amount that would otherwise be distributed under this Agreement.   The delayed amounts shall be distributed to the Executive (or the Beneficiary in the event of the Executive’s death) at the earliest date the Bank reasonably anticipates that the deduction of the payment of the amount will not be limited or eliminated by application of Code Section 162(m).

9.15 Compliance with Section 409A. This Agreement shall be interpreted and administered consistent with Code Section 409A.

12

IN WITNESS WHEREOF, the Executive and a duly authorized representative of the Bank have signed this Agreement.

EXECUTIVE:	MUTUALBANK
	By:
CHARLES J. VIATER	Name:
	Title:

13

MUTUALBANK

SALARY CONTINUATION AGREEMENT

BENEFICIARY DESIGNATION FORM

{  }        New Designation

{  }        Change in Designation

I, ___________________, designate the following as Beneficiary under this Agreement:

Primary:
		___%
		___%
	Contingent:
		___%
		___%

Notes:

· Please PRINT CLEARLY or TYPE the names of the beneficiaries.

· To name a trust as Beneficiary, please provide the name of the trustee(s) and the exact name and date of the trust agreement.

· To name your estate as Beneficiary, please write “Estate of Charles J. Viater”

· Be aware that none of the contingent beneficiaries will receive anything unless ALL of the primary beneficiaries predecease you.

I understand that I may change these beneficiary designations by delivering a new written designation to the Plan Administrator, which shall be effective only upon receipt and acknowledgment by the Plan Administrator prior to my death. I further understand that the designations will be automatically revoked if the Beneficiary predeceases me, or, if I have named my spouse as Beneficiary and our marriage is subsequently dissolved.

Name: Charles J. Viater

Signature: ________________Date: ______________, 201_

Received by the Plan Administrator this ___ day of ___________ 201_

By:

Name:

Title:

14

EX-21

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

Parent	Subsidiary	Percentage of Ownership			State of Incorporation or Organization
MutualFirst Financial, Inc.	MutualBank		100	%	Indiana
	MFBC Statutory Trust I		100	%	Indiana
	MutualFirst Risk Management, Inc.		100	%	Nevada
	Mutual Risk Advisors, Inc.		100	%	Indiana
MutualBank	Mutual Federal Investment Company		100	%	Nevada
	Mishawaka Financial Services, Inc.		100	%	Indiana
	Summit Service Corp		100	%	Indiana
Mutual Federal Investment Company	Mutual Federal REIT, Inc.		100	%	Maryland
Summit Service Corp	Summit Mortgage, Inc.		100	%	Indiana

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the registration statement of MutualFirst Financial, Inc. on Form S-3 (File No. 333-156881) and on Form S-8 (File Nos. 333-156882 and 333-53600) of our reports dated March 16, 2017, on our audits of the consolidated financial statements and financial statement schedules of MutualFirst Financial, Inc. as of December 31, 2016 and 2015, and for the years ended December 31, 2016, 2015 and 2014, which report is included in this Annual Report on From 10-K. We also consent to the incorporation by reference on our report dated March 16, 2017, on our audit of the internal control over financial reporting of MutualFirst Financial, Inc. as of December 31, 2016, which report is included in this Annual Report on Form 10-K.

/s/ BKD, LLP

Indianapolis, Indiana

March 16, 2017

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, David W. Heeter, certify that:

1. I have reviewed this annual report on Form 10-K 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: March 16, 2017	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 annual report on Form 10-K 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: March 16, 2017	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

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies in the capacity indicated below that this Annual Report on Form 10-K of MutualFirst Financial, Inc. (the “Company”) for the year ended December 31, 2016 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended , and that information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report.

Date:  March 16, 2017	By:	/s/ David W. Heeter
		David W. Heeter
		President and Chief Executive Officer
Date:  March 16, 2017	By:	/s/ Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and
		Chief Financial Officer

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Mar. 15, 2017	Jun. 30, 2016
Document Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
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		7,344,233
Entity Public Float			$ 139,200,000

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 8,503	$ 8,610
Interest-bearing demand deposits	18,357	12,305
Cash and cash equivalents	26,860	20,915
Interest-bearing time deposits	993
Investment securities available for sale (carried at fair value)	249,913	261,138
Loans held for sale	4,063	5,991
Loans, net of allowance for loan losses of $12,382 and $12,641, at December 31, 2016 and 2015, respectively	1,157,120	1,068,204
Premises and equipment, net	21,200	31,048
Federal Home Loan Bank stock	10,925	10,482
Deferred tax asset, net	12,037	12,084
Cash value of life insurance	51,594	51,209
Goodwill	1,800	1,800
Other real estate owned and repossessed assets	1,199	2,456
Other assets	15,429	12,938
Total assets	1,553,133	1,478,265
Deposits
Noninterest-bearing	178,046	179,542
Interest-bearing	975,336	911,840
Total deposits	1,153,382	1,091,382
Federal Home Loan Bank advances	240,591	225,617
Other borrowings	4,189	9,458
Other liabilities	14,933	14,783
Total liabilities	1,413,095	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 December 31, 2016 and 2015, respectively	73	74
Additional paid-in capital	74,164	77,363
Retained earnings	67,055	58,098
Accumulated other comprehensive income (loss)	(1,254)	1,490
Total stockholders' equity	140,038	137,025
Total liabilities and stockholders' equity	$ 1,553,133	$ 1,478,265

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Statement Of Financial Position [Abstract]
Allowance for loan losses	$ 12,382	$ 12,641
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 Statements of Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Interest and Dividend Income
Loans receivable	$ 46,785	$ 44,190	$ 43,522
Investment securities	6,500	7,090	7,036
Federal Home Loan Bank stock	441	482	603
Deposits with financial institutions	76	14	17
Total interest and dividend income	53,802	51,776	51,178
Interest Expense
Deposits	5,296	5,259	6,128
Federal Home Loan Bank advances	3,604	3,063	2,225
Other	347	481	570
Total interest expense	9,247	8,803	8,923
Net Interest Income	44,555	42,973	42,255
Provision for loan losses	850	125	850
Net Interest Income After Provision for Loan Losses	43,705	42,848	41,405
Non-interest Income
Service fee income	6,124	5,947	5,995
Net realized gain on sales of available for sale securities	1,023	436	313
Commissions	5,049	4,603	4,868
Net gains on sales of loans	4,761	4,176	1,849
Net servicing fees	332	274	114
Increase in cash value of life insurance	1,159	1,184	1,158
Loss on sale of other real estate and repossessed assets	(210)	(111)	(53)
Other income	1,184	630	641
Total non-interest income	19,422	17,139	14,885
Non-interest Expenses
Salaries and employee benefits	27,427	25,526	23,560
Net occupancy expenses	2,308	2,260	2,258
Equipment expenses	1,818	1,831	1,872
Data processing fees	1,991	1,746	1,558
ATM and debit card expenses	1,536	1,436	1,320
Deposit insurance	788	897	1,019
Professional fees	1,807	1,695	1,628
Advertising and promotion	1,204	1,193	1,497
Software subscriptions and maintenance	2,117	1,749	1,652
Other real estate and repossessed assets	73	374	631
Other expenses	4,431	4,440	4,383
Total non-interest expenses	45,500	43,147	41,378
Income Before Income Tax	17,627	16,840	14,912
Income tax expense	4,386	4,578	3,866
Net Income	$ 13,241	$ 12,262	$ 11,046
Earnings Per Common Share
Basic	$ 1.79	$ 1.66	$ 1.54
Diluted	1.76	1.62	1.49
Dividends Per Common Share	$ 0.58	$ 0.48	$ 0.32

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended												12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 3,237	$ 3,482	$ 4,157	$ 2,365	$ 3,338	$ 3,225	$ 3,218	$ 2,481	$ 3,661	$ 2,751	$ 2,614	$ 2,020	$ 13,241	$ 12,262	$ 11,046
Other Comprehensive Income (Loss)
Net unrealized holding gain (loss) on securities available for sale													(3,297)	(1,186)	8,921
Net unrealized gain on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income													39	12	381
Reclassification adjustment for realized gains included in net income													(1,023)	(436)	(313)
Net unrealized gain on derivative used for cash flow hedges													1	108	150
Net unrealized gain (loss) related to defined benefit plan													62	77	(209)
Other comprehensive income (loss), before tax, total													(4,218)	(1,425)	8,930
Income tax (expense) benefit related to other comprehensive income													1,474	537	(3,137)
Other comprehensive income (loss), net of tax													(2,744)	(888)	5,793
Comprehensive Income													$ 10,497	$ 11,374	$ 16,839

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Additional paid-in capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Beginning Balance at Dec. 31, 2013	$ 71	$ 73,336	$ 40,637	$ (3,415)	$ 110,629
Net income			11,046		11,046
Other comprehensive income, net of taxes				5,793	5,793
Stock options, exercised	1	1,346			1,347
Tax benefit on stock options		234			234
Cash dividends, common stock			(2,297)		(2,297)
Ending Balance at Dec. 31, 2014	72	74,916	49,386	2,378	126,752
Net income			12,262		12,262
Other comprehensive income, net of taxes				(888)	(888)
Stock options, exercised	2	2,009			2,011
Tax benefit on stock options		438			438
Cash dividends, common stock			(3,550)		(3,550)
Ending Balance at Dec. 31, 2015	74	77,363	58,098	1,490	137,025
Net income			13,241		13,241
Other comprehensive income, net of taxes				(2,744)	(2,744)
Stock repurchased	(2)	(4,352)			(4,354)
Stock options, exercised	1	975			976
Tax benefit on stock options		178			178
Cash dividends, common stock			(4,284)		(4,284)
Ending Balance at Dec. 31, 2016	$ 73	$ 74,164	$ 67,055	$ (1,254)	$ 140,038

XML

Consolidated Statements of Stockholders' Equity (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Statement Of Stockholders Equity [Abstract]
Cash dividends, common stock, per share	$ 0.58	$ 0.48	$ 0.32

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Operating Activities
Net income	$ 13,241,000	$ 12,262,000	$ 11,046,000
Items not requiring cash
Provision for loan losses	850,000	125,000	850,000
Depreciation and amortization	5,006,000	4,546,000	4,113,000
Deferred income tax	1,537,000	1,926,000	1,087,000
Increase in cash value of life insurance	(346,000)	(204,000)
Loans originated for sale	(150,620,000)	(145,749,000)	(67,295,000)
Proceeds from sales of loans held for sale	156,827,000	149,613,000	64,614,000
Gain on sale of loans held for sale	(4,761,000)	(4,176,000)	(1,849,000)
Net gain on sale of securities, available for sale	(1,023,000)	(436,000)	(313,000)
Loss on sale of other real estate and repossessed assets	210,000	111,000	53,000
Change in
Interest receivable and other assets	(1,349,000)	(1,321,000)	(386,000)
Interest payable and other liabilities	(5,000)	277,000	774,000
Cash value of life insurance	(1,159,000)	(1,184,000)	(1,158,000)
Other adjustments	143,000	143,000	474,000
Net cash provided by operating activities	18,551,000	15,933,000	12,010,000
Investing Activities
Net change in interest-bearing time deposits	(993,000)
Purchases of securities
Purchases of securities, available for sale	(88,161,000)	(67,414,000)	(48,001,000)
Proceeds from maturities and paydowns of securities
Available for sale	37,872,000	41,824,000	31,709,000
Proceeds from sales of securities, available for sale	57,037,000	23,109,000	28,317,000
Redemption of Federal Home Loan Bank stock		2,154,000	2,427,000
Purchase of Federal Home Loan Bank stock	(443,000)	(672,000)
Net change in loans	(92,946,000)	(67,561,000)	(41,611,000)
Purchases of premises and equipment	(2,079,000)	(2,413,000)	(1,306,000)
Cash paid in acquisition, net			(900,000)
Proceeds from real estate owned sales	2,497,000	2,260,000	7,605,000
Proceeds from bank owned life insurance benefit	1,120,000	1,181,000
Proceeds from sale of premises and equipment	9,490,000
Net cash used in investing activities	(76,606,000)	(67,532,000)	(21,760,000)
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits	39,883,000	62,642,000	36,828,000
Certificates of deposit	22,117,000	(50,580,000)	(70,593,000)
Proceeds from FHLB advances	316,300,000	355,700,000	493,700,000
Repayments of FHLB advances	(301,326,000)	(322,525,000)	(444,186,000)
Repayments of other borrowings	(5,312,000)	(759,000)	(759,000)
Cash dividends	(4,284,000)	(3,550,000)	(2,297,000)
Stock options exercised	976,000	2,011,000	1,347,000
Stock repurchased	(4,354,000)
Net cash provided by financing activities	64,000,000	42,939,000	14,040,000
Net Change in Cash and Cash Equivalents	5,945,000	(8,660,000)	4,290,000
Cash and Cash Equivalents, Beginning of Period	20,915,000	29,575,000	25,285,000
Cash and Cash Equivalents, End of Period	26,860,000	20,915,000	29,575,000
Additional Cash Flows Information
Interest paid	9,096,000	8,827,000	8,857,000
Income tax paid	2,650,000	2,850,000	2,500,000
Transfers from loans to foreclosed real estate	1,450,000	1,301,000	2,129,000
Mortgage servicing rights capitalized	482,000	460,000	$ 278,000
Transfer from fixed assets to other assets	$ 763,000	$ 702,000

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Nature of Operations and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2016

Nature of Operations and Summary of Significant Accounting Policies [Abstract]

Nature of Operations and Summary of Significant Accounting Policies

Note 1:Nature of Operations and Summary of Significant Accounting Policies

The accounting and reporting policies of MutualFirst Financial, Inc. (Company) and its wholly owned subsidiaries,  MFBC Statutory Trust, MutualFirst Risk Management, Inc., Mutual Risk Advisors, Inc., and MutualBank (Bank) and the Bank’s wholly owned subsidiaries, Mishawaka Financial Services, Mutual Federal Investment Company and the wholly owned subsidiary of Mutual Federal Investment Company, Mutual Federal REIT, Inc. and Summit Service Corp. and their wholly owned subsidiary, Summit Mortgage, Inc., 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.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, goodwill, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, loan servicing rights, valuation of deferred tax assets, other-than-temporary impairments (OTTI) and fair value of financial instruments.

The Bank generates mortgage, consumer and commercial loans and receives deposits from customers located primarily in North and Central Indiana.  The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets.  Mutual Federal Investment Company invests in various investment securities and loans through Mutual Federal REIT, Inc.

Consolidation - The consolidated financial statements include the accounts of the Company, the Bank, and the Bank’s subsidiaries, after elimination of all material intercompany transactions.

Cash Equivalents - The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.  At December 31, 2016 and 2015, cash equivalents consisted primarily of money market accounts with brokers and checking accounts with government sponsored entities. 

At December 31, 2016, the Company’s cash accounts exceeded federally insured limits by approximately $6.7 million.  Included in this amount are uninsured accounts of approximately $2.9 million at the Federal Reserve Bank of Chicago and Federal Home Loan Bank of Indianapolis.

Interest-bearing time deposits – The fair value of interest-bearing time deposits approximates carrying value.

Derivative Instruments  –The Company occasionally enters into derivative financial instruments as part of its interest rate risk strategies.  These derivative financial instruments consist primarily of interest rate swaps.  These instruments are carried at the fair value of the derivatives and reflects the estimated amounts that would have been received to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information.

The Company offers interest rate derivative products (e.g. interest rate swaps) to certain of its high-quality commercial borrowers.  This product allows customers to enter into an agreement with the Company to swap their variable rate loan to a fixed rate. These derivative products are designed to reduce, eliminate or modify the risk of changes in the borrower’s interest rate. The extension of credit incurred through the execution of these derivative products is subject to the same approvals and rigorous underwriting standards as the related traditional credit product. The Company limits its risk exposure to these products by entering into a mirror-image, offsetting swap agreement with a separate, well-capitalized and rated counterparty.  These transactions are ratified by the Asset Liability Committee. By using these interest rate swap arrangements, the Company is also better insulated from the interest rate risk associated with underwriting fixed-rate loans. These derivative do not qualify for hedge accounting. The derivatives are recorded on the balance sheet at fair value and changes in fair value of both the customer and the offsetting swap agreements are recorded (and essentially offset) in non-interest income.

Investment Securities - Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost.  At December 31, 2016 and 2015, no securities were classified as held to maturity.  Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.  Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.When the Company does not intend to sell a debt security, and it is more likely than not that, the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.  For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

The Company’s consolidated statement of income reflects the full impairment (that is, the differences between the security’s amortized cost basis and fair value) on debt securities that the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis.  For availableforsale and held-to-maturity debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income.  The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections. 

For equity securities, when the Company has decided to sell an impaired availableforsale security and does not expect the fair value of the security to fully recover before the expected time of sale, the security is deemed other-than-temporarily impaired in the period in which the decision to sell is made.  The Company recognizes an impairment loss when the impairment is deemed other than temporary even if a decision to sell has not been made.

Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses.  In estimating other-than-temporary losses, management considers the length of time and extent that fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Loans held for sale are carried at the lower of aggregate cost or market.  Market is determined using the aggregate method.  Net unrealized losses, if any, are recognized through a valuation allowance by charges to income based on the difference between estimated sales proceeds and aggregate cost.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on mortgage, consumer and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.  Past due status is based on contractual terms of the loan.  In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual 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.

Discounts and premiums on purchased residential real estate and commercial loans is amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments.  Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.

Allowance for loan losses -  The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.  Loan losses are charged against the allowance when management believes the inability to collect a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

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 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 historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior three years.  Management believes the three year historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed.

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 allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the ability to collect the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components.  The allocated component relates to loans that are classified as impaired.  For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-classified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process.  Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.  Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Premises and equipment are carried at cost net of accumulated depreciation.  Depreciation is computed using the straight-line method based principally on the estimated useful lives of the assets which range from 3 to 50 years.  Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.  Gains and losses on dispositions are included in current operations.

Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank (FHLB) system.  The required investment in the common stock is based on a predetermined formula, carried at cost and is evaluated for impairment.

Mortgage-servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets.  Under the servicing assets and liabilities accounting guidance, servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer.  The Company subsequently measures each class of servicing asset using the amortization method.  Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income.  The amortized assets are assessed for impairment based on fair value at each reporting date.

Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.  These variables change from quarter to quarter as market conditions and projected interest rates change, and may have an adverse impact on the value of the mortgage servicing right and may result in a reduction to noninterest income.

Each class of separately recognized servicing assets subsequently measured using the amortization method are evaluated and measured for impairment.  Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type.  Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche.  The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment.  Changes in valuation allowances are reported with net servicing fees on the income statement.  Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.

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

Investment in limited partnerships is recorded primarily on the proportional amortization method of accounting.  Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).

Intangible assets are being amortized on an accelerated basis over periods ranging from three to 11years.  Such assets are periodically evaluated as to the recoverability of their carrying value.

Income taxes areaccounted for in accordance with income tax accounting guidance.  The income tax accounting guidance results in two components of income tax expense:  current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.  The Companydetermines deferred income taxes using the balance sheet method.  Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. 

Deferred tax assetsare evaluated on a quarterly basis for recoverability based on all available evidence.This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between our future projected operating performance and our actual results.  We are required to establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized.  In determining the more-likely-than-not criterion, we evaluate all positive and negative available evidence as of the end of each reporting period.  Future adjustments to the deferred tax asset valuation allowance, if any, will be determined based upon changes in the expected realization of the net deferred tax assets.  The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income in either the carry back or carry forward periods under applicable tax laws.  Due to significant estimates utilized in establishing the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record adjustments to the valuation allowance in the near term if estimates of future taxable income during the carry forward period are reduced.  Such a charge could have a material adverse effect on our results of operations, financial condition, and capital position.

Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination.  The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.  A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.  The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment. 

The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company files consolidated income tax returns with its subsidiaries.

Earnings per share is computed based upon the weighted-average common and common equivalent shares outstanding during each year. 

Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes.  Other comprehensive income includes unrealized gains (losses) on availableforsale securities, unrealized gains (losses) on availableforsale securities for which a portion of an other-than-temporary impairment has been recognized in income, unrealized and realized gains and losses in derivative financial instruments and changes in the funded status of defined benefit pension plans.

Stock options - The Company has stock-based employee compensation plans, which are described more fully in Note 20.

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Impact of Accounting Pronouncements

12 Months Ended

Dec. 31, 2016

Impact of Accounting Pronouncements [Abstract]

Impact of Accounting Pronouncements

Note 2:Impact of Accounting Pronouncements

In August 2016, the FASB issued 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 by specifically addressing eight specific areas.  The amendments are effective for the Company for annual and interim periods beginning in the first quarter of 2018. Early adoption is permitted, including adoption in an interim period.  The Company is currently evaluating the effects that this ASU will have on its financial statements, specifically the Statement of Cash Flows, and does not expect these effects to be material.

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 provide financial statement users with useful information about the expected credit losses on financial instruments and other commitments to extend credit.

· The ASU requires that a financial assets measured at amortized cost (primarily for the Company, loans) to be presented at the amount net of a valuation allowance for credit losses, and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate.  The new model will be based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current U.S. GAAP in that current U.S. GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.

· This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down.

This ASU will be effective for the Company for interim and annual periods beginning in the first quarter of 2020.  Earlier adoption is permitted beginning in the first quarter of 2019.  The Company is in the evaluation stage for this ASU in order to determine the most appropriate method of implementation and all resources and data (both current and historical) needed.

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. This Update includes amendments that currently apply, or may apply in the future, to the Corporation related to the following: (1) accounting for the difference between the deduction for tax purposes and the amount of compensation cost recognized for financial reporting purposes; (2) classification of excess tax benefits on the statement of cash flows; (3) accounting for forfeitures; (4) accounting for awards partially settled in cash in excess of the employer’s minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. The amendments in this Update were effective for the Company for annual and interim periods beginning in the first quarter 2017.  The ASU provides separate transition provisions for each of the amendments. Initial adoption of this ASU in 2017 did not have a significant impact on the Company.

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 ASU: (1) eliminates 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; (2) requires 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; and (3) 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 were effective for the Company for annual and interim periods beginning in the first quarter 2017. 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.  Initial adoption of this ASU in 2017 did not have a significant impact on the Company.

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.  These changes will increase transparency among companies by recognizing lease assets and liabilities on the balance sheet and disclosing additional information about lease arrangements.  The amendments in this update are effective for annual and interim periods beginning in the first quarter of 2019. The Company has operating leases in place for some locations as well as equipment and is in the early stages of evaluating the potential impact of adopting this amendment.

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: (1) 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); (2) 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; and (3) eliminates the requirement 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 the Company for annual and interim periods beginning in the first quarter of 2018. Current evaluation would indicate that the primary area impacted by the amendments of this ASU will be our investment in Federal Home Loan Bank stock, which is an equity security and does not have a readily determinable fair value.  See Note 1 – Significant Accounting Policies, “Federal Home Loan Bank Stock” for information regarding the Company’s investment.  The adoption of ASU 2016-01 is not anticipated to have a material effect on the Company’s consolidated financial statements.

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Restriction on Cash

12 Months Ended

Dec. 31, 2016

Restriction on Cash [Abstract]

Restriction on Cash

Note 3:Restriction on Cash

The Bank is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank of Chicago.  The reserve requirement at December 31, 2016 was $2,271,000.

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Investment Securities

12 Months Ended

Dec. 31, 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 as follows:

	2016
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale Securities
Mortgage-backed securities	$	92,871	$	802	$	(1,156)	$	92,517
Collateralized mortgage obligations		68,621		269		(843)		68,047
Municipal obligations		77,474		1,716		(1,508)		77,682
Corporate obligations		12,822		78		(1,233)		11,667
Total investment securities	$	251,788	$	2,865	$	(4,740)	$	249,913

	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

All mortgage-backed securities and collateralized-mortgage obligations held by the Company as of December 31, 2016 were in government-sponsored and federal agency securities.

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 December 31, 2016 and 2015 was

$143.8 million and $97.6million, which is approximately57.6 percent and 37.4 percent 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 declines in fair value for these securities 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.

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 December 31, 2016 and 2015:

	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	$	58,056	$	(1,156)	$	-	$	-	$	58,056	$	(1,156)
Collateralized mortgage obligations		41,769		(683)		4,688		(160)		46,457		(843)
Municipal obligations		31,907		(1,507)		337		(1)		32,244		(1,508)
Corporate obligations		-		-		7,076		(1,233)		7,076		(1,233)
Total temporarily impaired securities	$	131,732	$	(3,346)	$	12,101	$	(1,394)	$	143,833	$	(4,740)

	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)

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

The unrealized losses on the Company’s investment in CMOs and MBSs were caused by interest rate changes and illiquidity.  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 illiquidity 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 these investments to be other-than-temporarily impaired at December 31, 2016.

Municipals

The unrealized losses on the Company’s investments in securities of state and political subdivisions were caused by changes in interest rates and illiquidity. 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 the investment and it is not more likely than not that the Company will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity. The Corporation does not consider the investment securities to be other-than-temporarily impaired at December 31, 2016.

Corporate Obligations

The Company’s unrealized loss on investments in corporate obligations primarily relates to 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 several industry analysts.  The Company currently expects some of the securities to settle at a price less than the amortized cost basis of the investment (that is, the Company expects to recover less than the entire amortized cost basis of the security).  The Company has recognized a loss equal to the credit loss 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 the investments to be other-than-temporarily impaired at December 31, 2016.

Other-Than-Temporary Impairment

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 where the security is not a beneficial interest in securitized financial assets, the Company uses debt and equity securities impairment 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. 

The Bank’s trust preferred securities valuation was prepared by an independent third party.  Their approach to determining fair value involved several steps including:

· Detailed credit and structural evaluation of each piece of collateral in the trust preferred securities;

· Collateral performance projections for each piece of collateral in the trust preferred security;

· Terms of the trust preferred structure, as laid out in the indenture; and

· Discounted cash flow modeling.

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 no active market 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 make adjustments as necessary to reflect this additional risk.

The default and recovery probabilities for each piece of collateral were formed based on the evaluation of the collateral credit and a review of historical industry default data and current/near-term operating conditions.  For collateral that has already defaulted, the Company assumed no recovery.  For collateral that was in deferral, the Company assumed a recovery of 10% of par for banks, thrifts or other depository institutions and 15% of par for insurance companies.  Although the Company conservatively assumed that the majority of the deferring collateral continues to defer and eventually defaults, we also recognize there is a possibility that some deferring collateral may become current at some point in the future.

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 table provides information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income.

	Accumulated Credit Losses
	2016		2015		2014
Credit losses on debt securities held
Beginning of period	$	109	$	109	$	1,205
Reductions related to actual losses incurred		-		-		-
Reductions for previous credit losses realized on securities sold during the year		-		-		(1,096)
As of December 31,	$	109	$	109	$	109

The amortized cost and fair value of securities available for sale at December 31, 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
One to five years	$	5,345	$	5,353
Five to ten years		14,386		14,861
After ten years		70,565		69,135
		90,296		89,349
Mortgage-backed securities		92,871		92,517
Collateralized mortgage obligations		68,621		68,047
Totals	$	251,788	$	249,913

The Company did not have securities pledged as collateral, to secure public deposits or for other purposes as of December 31, 2016or 2015.

Proceeds from sales of securities available for sale during 2016, 2015 and 2014 were $57,037,000,  $23,109,000 and $28,317,000, respectively.  Gross gains of $1,094,000,  $436,000 and $1,176,000in 2016, 2015 and 2014 were recognized on those sales.  Gross losses of$71,000,  $0 and $863,000in 2016, 2015 and 2014 were recognized on those sales.

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Loans and Allowance

12 Months Ended

Dec. 31, 2016

Loans and Allowance [Abstract]

Loans and Allowance

Note 5: Loans and Allowance

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

	December 31,
	2016		2015
Real estate
Commercial	$	302,577	$	236,895
Commercial construction and development		22,453		15,744
Consumer closed end first mortgage		478,848		491,451
Consumer open end and junior liens		71,222		70,990
		875,100		815,080
Other loans
Consumer loans
Auto		18,939		15,480
Boat/RVs		141,602		123,621
Other		5,892		6,171
Commercial and industrial		131,103		123,043
		297,536		268,315
Total loans		1,172,636		1,083,395
Undisbursed loans in process		(8,691)		(7,432)
Unamortized deferred loan costs, net		5,557		4,882
Allowance for loan losses		(12,382)		(12,641)
Net loans	$	1,157,120	$	1,068,204

Year-end non-accrual loans, segregated by class of loans, were as follows:

	December 31,
	2016		2015
Real estate
Commercial	$	912	$	2,356
Commercial construction and development		-		-
Consumer closed end first mortgage		3,626		3,592
Consumer open end and junior liens		335		783
Consumer loans
Auto		5		-
Boat/RVs		224		81
Other		24		67
Commercial and industrial		18		25
	$	5,144	$	6,904

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 managements’ opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions, but never later than 90 days past due.  When interest accrual is discontinued, all unpaid accrued interest is reversed.  Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. 

All interest accrued but not collected for loans that are placed on nonaccrual 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.

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

	December 31, 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 and Accruing
Real estate
Commercial	$	854	$	142	$	785	$	1,781	$	300,796	$	302,577	$
Commercial construction and development		-		-		-		-		22,453		22,453
Consumer closed end first mortgage		6,789		1,554		3,675		12,018		466,830		478,848		237
Consumer open end and junior liens		512		166		304		982		70,240		71,222
Consumer loans
Auto		103		25		5		133		18,806		18,939
Boat/RVs		1,376		305		213		1,894		139,708		141,602
Other		89		26		13		128		5,764		5,892
Commercial and industrial		497		32		8		537		130,566		131,103
	$	10,220	$	2,250	$	5,003	$	17,473	$	1,155,163	$	1,172,636	$	237

	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 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		-
	$	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 commercial 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 is accounted for on the cash-basis method until qualifying for return to accrual.  Interest is accrued per the contract for impaired loans that are performing.

The following tables present impaired loans for the years ended December 31, 2016, 2015 and 2014:

	December 31, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	665	$	665	$	-	$	2,207	$	68
Commercial construction and development		822		822		-		874		40
Consumer closed end first mortgage		1,869		1,869		-		1,328		-
Consumer open end and junior liens		-		-		-		193		-
Commercial and industrial		187		187		-		204		1
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		416		-
Total
Real estate
Commercial	$	879	$	879	$	100	$	2,623	$	68
Commercial construction and development	$	822	$	822	$	-	$	874	$	40
Consumer closed end first mortgage	$	1,869	$	1,869	$	-	$	1,328	$	-
Consumer open end and junior liens	$	-	$	-	$	-	$	193	$	-
Commercial and industrial	$	187	$	187	$	-	$	204	$	1
Total	$	3,757	$	3,757	$	100	$	5,222	$	109

	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

As of December 31, 2014, there were no impaired loans with a valuation allowance. 

	December 31, 2014
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	4,933	$	4,933	$	-	$	3,776	$	161
Commercial construction and development		931		1,860		-		1,323		30
Consumer closed end first mortgage		1,138		1,138		-		1,142		8
Consumer open end and junior liens		-		-				100		3
Commercial and industrial		758		789		-		923		12
Total	$	7,760	$	8,720	$	-	$	7,264	$	214

The following information presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2016 and 2015.

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 of 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.

	December 31, 2016
		Commercial								Consumer
		Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial		$	295,548	$	3,705	$	3,297	$	27							$	302,577
Commercial construction and development			21,782		254		417		-								22,453
Consumer closed end first mortgage										$	473,329	$	-	$	5,519		478,848
Consumer open end and junior liens											70,769		-		453		71,222
Other loans
Consumer loans
Auto											18,931		-		8		18,939
Boat/RVs											141,294		-		308		141,602
Other											5,859		-		33		5,892
Commercial and industrial			128,436		2,513		154		-								131,103
		$	445,766	$	6,472	$	3,868	$	27	$	710,182	$	-	$	6,321	$	1,172,636

	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

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

Commercial Loans

Commercial real estate 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.

Commercial 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 business 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 short-term 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.

Residential and Consumer

With respect to residential loans that are secured by one-to-four family residences and are primarily owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance (PMI) if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one-to-four family residences, and 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.

The following tables detail activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2016, 2015 and 2014.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses on other segments.

	December 31, 2016
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	7,090	$	2,683	$	2,868	$	12,641
Provision charged (credited) to expense		457		15		378		850
Losses charged off		(274)		(420)		(788)		(1,482)
Recoveries		85		25		263		373
Balance, end of period	$	7,358	$	2,303	$	2,721	$	12,382

	December 31, 2015
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	7,085	$	3,471	$	2,612	$	13,168
Provision charged to expense		(389)		(179)		693		125
Losses charged off		(104)		(643)		(640)		(1,387)
Recoveries		498		34		203		735
Balance, end of period	$	7,090	$	2,683	$	2,868	$	12,641

	December 31, 2014
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	8,148	$	3,124	$	2,140	$	13,412
Provision charged (credited) to expense		(1,273)		888		1,235		850
Losses charged off		(289)		(572)		(1,021)		(1,882)
Recoveries		499		31		258		788
Balance, end of period	$	7,085	$	3,471	$	2,612	$	13,168

	December 31, 2016
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,258		2,303		2,721		12,282
Total allowance for loan losses	$	7,358	$	2,303	$	2,721	$	12,382
Loan balances
Individually evaluated for impairment	$	1,888	$	1,869	$	-	$	3,757
Collectively evaluated for impairment		454,245		476,979		237,655		1,168,879
Gross loans	$	456,133	$	478,848	$	237,655	$	1,172,636

	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

	December 31, 2014
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		7,085		3,471		2,612		13,168
Total allowance for loan losses	$	7,085	$	3,471	$	2,612	$	13,168
Loan balances
Individually evaluated for impairment	$	6,622	$	1,138	$	-	$	7,760
Collectively evaluated for impairment		312,973		515,925		185,730		1,014,628
Gross loans	$	319,595	$	517,063	$	185,730	$	1,022,388

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 six months, is obtained.  If a loan is on accrual at the time of the modification, the loan is evaluated to determine the collection of principal and interest is reasonably assured and generally stays on accrual.

At December 31, 2016 and 2015, the Company had a number of loans that were modified in troubled debt restructurings and impaired.  The modification of terms of such loans included one or a combination of the following:  an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.  

The following tables describe troubled debts restructured during the years ended December 31, 2016, 2015 and 2014.

	December 31, 2016
	No. of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate
Commercial	1	$	406	$	406
Commercial construction and development	1		83		83
Consumer closed end first mortgage	14		881		911
Consumer open end and junior liens	1		39		39
Consumer loans
Auto	1		4		4
Boat/RV	3		56		56
Other	2		7		7

	December 31, 2015
	No. of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate
Commercial	4	$	2,399	$	2,406
Commercial construction and development	1		155		155
Consumer closed end first mortgage	8		287		287
Consumer open end and junior liens	3		51		51
Consumer loans
Auto	2		25		25
Commercial and industrial	1		88		83

	December 31, 2014
	No. of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate
Commercial	6	$	1,229	$	1,248
Consumer closed end first mortgage	12		1,493		1,139
Consumer open end and junior liens	5		58		59
Commercial and industrial	2		193		223

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

Newly restructured loans by type for the years ended December 31, 2016, 2015 and 2014 are as follows:

	December 31, 2016
		Interest Only		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	406	$	-	$	406
Commercial construction and development		-		83		-		83
Consumer closed end first mortgage		-		47		864		911
Consumer open end junior lien		-		-		39		39
Consumer Loans
Auto		-		-		4		4
Boat/RV		-		48		8		56
Other		-		7		-		7

	December 31, 2015
		Interest Only		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	2,406	$	-	$	2,406
Commercial construction and development		-		-		155		155
Consumer closed end first mortgage		-		11		276		287
Consumer open end junior lien		-		51		-		51
Consumer Loans
Auto		-		25		-		25
Commercial and industrial		-		83		-		83

	December 31, 2014
		Interest Only		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	701	$	547	$	1,248
Consumer closed end first mortgage		101		-		1,038		1,139
Consumer open end junior lien		-		28		31		59
Consumer Loans
Commercial and industrial		-		223		-		223

Defaults of any loans modified as troubled debt restructurings made in the years ended December 31, 2016, 2015 and 2014, respectively, are listed in the table below.  Defaults are defined as any loans that become 90 days past due.

	December 31, 2016
	No. of Loans	Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage	5	$	179
Consumer Loans
Boat/RV	1		7

	December 31, 2015
	No. of Loans	Post-Modification Outstanding Recorded Balance
Real Estate
Commercial	1	$	820

	December 31, 2014
	No. of Loans	Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage	4	$	663
Consumer open end and junior liens	1		23

At December 31, 2016, the Company held residential real estate held for sale as a result of foreclosure totaling $552,000 and real estate in the process of foreclosure of $1.9 million.

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Related Party Transactions

12 Months Ended

Dec. 31, 2016

Related Party Transactions [Abstract]

Related Party Transactions

Note 6: Related Party Transactions

The Bank has entered into transactions with certain directors, executive officers and significant shareholders of the Company and Bank and their affiliates or associates (related parties).  Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features.

The aggregate amount of loans, as defined, to such related parties was as follows:

	2016
Balances, January 1,	$	8,062
Change in composition		(14)
New loans, including renewals		5,358
Payments, etc., including renewals		(6,271)
Balances, December 31,	$	7,135

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Premises and Equipment

12 Months Ended

Dec. 31, 2016

Premises and Equipment [Abstract]

Premises and Equipment

Note 7: Premises and Equipment

Major classifications of premises and equipment, stated at cost, are as follows:

	2016		2015
Cost
Land	$	8,074	$	12,393
Buildings and land improvements		19,264		26,651
Equipment		13,562		12,877
Total cost		40,900		51,921
Accumulated depreciation and amortization		(19,700)		(20,873)
Net	$	21,200	$	31,048

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Core Deposit and Other Intangibles

12 Months Ended

Dec. 31, 2016

Core Deposit and Other Intangibles [Abstract]

Core Deposit and Other Intangibles

Note 8:Core Deposit and Other Intangibles

The carrying basis of recognized intangible assets at December 31, 2016 and 2015, were:

		2016		2015
Core deposits	$	200	$	444
Other intangibles		191		367
	$	391	$	811

Amortization expense for the years ended December 31, 2016, 2015 and 2014, was $420,000,$517,000 and $647,000, respectively.  Estimated amortization expense for each of the nextthree years, which is the remaining life, is:

2017	$	264
2018		114
2019		13
	$	391

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Goodwill

12 Months Ended

Dec. 31, 2016

Goodwill [Abstract]

Goodwill

Note 9: Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2016 and 2015 were:

		2016		2015
Balance as of January 1	$	1,800	$	1,800
Goodwill acquired during the year		-		-
Balance as of December 31	$	1,800	$	1,800

Goodwill is tested for impairment on an annual basis as of December 31, or whenever events or changes in circumstances indicate the carrying amount of goodwill exceeds its implied fair value.  No events or changes in circumstances have occurred since the annual impairment test that would suggest is was more likely than not goodwill impairment existed.

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Deposits

12 Months Ended

Dec. 31, 2016

Deposits [Abstract]

Deposits

Note 10:Deposits

Deposits were comprised of the following at December 31, 2016 and 2015:

	December 31,		December 31,
	2016		2015
Noninterest-bearing demand	$	178,046	$	179,542
Interest-bearing demand		292,977		267,089
Savings		136,314		131,578
Money market savings		173,305		162,551
Certificates and other time deposits of $100,000 or more		181,067		147,268
Other certificates		191,673		203,354
Total deposits	$	1,153,382	$	1,091,382

Certificates, including other time deposits of $100,000 or more, maturing in years ending December 31 are as follows:

2017	$	190,130
2018		48,689
2019		37,076
2020		58,507
2021		32,244
Thereafter		6,094
	$	372,740

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Federal Home Loan Bank Advances

12 Months Ended

Dec. 31, 2016

Federal Home Loan Bank Advances [Abstract]

Federal Home Loan Bank Advances

Note 11:Federal Home Loan Bank Advances

FHLB advances maturing in years ending December 31 are as follows:

2017	$	70,028
2018		39,030
2019		40,533
2020		36,500
2021		26,500
Thereafter		28,000
	$	240,591

At December 31, 2016, the Company had pledged $360,870,000 in qualifying first mortgage loans as collateral for advances and outstanding letters of credit.  Advances, at interest rates from 0.60%to6.73% at December 31, 2016, were subject to restrictions or penalties in the event of prepayment.

At December 31, 2016, the Company had a total of $15 million in putable and $40 million in symmetrical advances with Federal Home Loan Bank.  The call dates for these advances range from 2019 through 2021 even though maturity dates extend beyond those dates.

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Other Borrowings

12 Months Ended

Dec. 31, 2016

Other Borrowings [Abstract]

Other Borrowings

Note 12:Other Borrowings

Other borrowings consisted of the following components as of December 31:

	2016		2015
Note payable	$	-	$	5,312
Subordinated debenture, net of discount		4,189		4,146
Total	$	4,189	$	9,458

The Company borrowed $7,589,000 from First Tennessee Bank, N.A. at a variable rate of LIBOR plus 2.80%, with principal and interest payments made quarterly.  The loan was paid in full in November 2016.

The Company assumed $5,000,000 in debentures as the result of an acquisition of MFB Corp. in 2008.  In 2005, MFB Corp. had formed MFBC Statutory Trust (MFBC), as a wholly owned business trust, to sell trust preferred securities.  The proceeds from the sale of these trust preferred securities were used by the trust to purchase an equivalent amount of subordinated debentures from the acquired company.  The junior subordinated debentures are the sole assets of MFBC and are fully and unconditionally guaranteed by the Company.  The junior subordinated debentures and the trust preferred securities pay interest and dividends, respectively, on a quarterly basis.  The rate resets quarterly at the prevailing three-month LIBOR rate plus 170 basis points.  The Company may redeem the trust preferred securities, in whole or in part, without penalty, on or after September 15, 2010.  These securities mature on September 15, 2035.  The net balance of the note as of December 31, 2016 was $4,189,000 due to the fair value adjustment of the note made at the time of the acquisition.

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Derivative Financial Instruments

12 Months Ended

Dec. 31, 2016

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 13:Derivative Financial Instruments

The Company has certain interest rate derivative positions that are not designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Balance Sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Company enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Company agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institution offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Company’s Consolidated Statements of Income.  The notional amount of customer-facing swaps as of December 31, 2016 and 2015 was approximately $14,588,000 and $4,649,000, respectively.

The following table shows the amounts of derivative financial instruments at December 31, 2016 and 2015.

	Asset Derivatives
		December 31,					December 31,
			2016	2015				2016	2015
	Balance Sheet Location		Fair Value		Fair Value	Balance Sheet Location		Fair Value		Fair Value
Derivatives not designated as hedging instruments:
Interest rate contracts	Other assets	$	553	$	336	Other liabilities	$	553	$	336

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Loan Servicing

12 Months Ended

Dec. 31, 2016

Loan Servicing [Abstract]

Loan Servicing

Note 14:Loan Servicing

Loans serviced for others are not included in the accompanying consolidated balance sheets.  The unpaid principal balances of these loans consist of the following:

	2016		2015
Loans serviced for
Freddie Mac	$	301,263	$	295,613
Fannie Mae		7,355		11,535
FHLB		10,621		12,677
Other investors		1,551		1,763
	$	320,790	$	321,588

The aggregate fair value of capitalized mortgage servicing rights is based on comparable market values and expected cash flows, with impairment assessed based on portfolio characteristics including product type and interest rates.  The amount of servicing fees collected during 2016, 2015 and 2014 totaled approximately $801,000,  $814,000, and $832,000, respectively.

	2016		2015		2014
Mortgage-servicing rights
Balances, January 1	$	1,335	$	1,417	$	1,858
Servicing rights capitalized		482		458		278
Amortization of servicing rights		(466)		(540)		(719)
	$	1,351	$	1,335	$	1,417

The fair value of servicing rights subsequently measured using the amortization method was as follows:

	2016		2015		2014
Mortgage-servicing rights
Fair value, beginning of period	$	2,179	$	2,048	$	2,106
Fair value, end of period		2,110		2,179		2,048

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Income Tax

12 Months Ended

Dec. 31, 2016

Income Tax [Abstract]

Income Tax

Note 15:Income Tax

The provision for income taxes includes these components:

	2016		2015		2014
Income tax expense
Currently payable
Federal	$	2,849	$	2,652	$	2,779
State		-		-		-
Deferred
Federal		1,317		1,706		867
State		220		220		220
Total income tax expense	$	4,386	$	4,578	$	3,866

A reconciliation of income tax expense at the federal statutory rate to actual tax expense is shown below:

	2016			2015			2014
Federal statutory income tax at 34%	$	5,993		$	5,721		$	4,897
Other than temporary impairment		-			-			(615)
Non tax captive insurance income		(319)			-			-
State taxes		145			145			145
Low income housing credits		(96)			(96)			(107)
Tax-exempt income		(1,404)			(1,111)			(818)
Other		67			(81)			364
Actual tax expense	$	4,386		$	4,578		$	3,866
Effective tax rate		24.88	%		27.21	%		25.93	%

The components of the deferred asset included on the consolidated balance sheets were as follows:

	2016		2015
Assets
Allowance for loan losses	$	4,999	$	5,091
Deferred compensation		3,174		3,193
Business tax and AMT credit carryovers		4,100		4,776
Capital loss carryover		-		102
Net operating loss carryover		1,496		1,845
Goodwill impairment		1,780		2,188
Purchase accounting adjustments		1,010		1,060
Other-than-temporary-impairment, available for sale securities		37		37
Unrealized loss on securities available for sale		776		-
Other		857		1,275
Total assets		18,229		19,567
Liabilities
Unrealized gain on securities available for sale	$	-	$	(720)
Depreciation and amortization		(504)		(465)
FHLB stock		(385)		(358)
State income tax		(551)		(585)
Loan fees		(355)		(298)
Investments in limited partnerships		(2,072)		(2,255)
Mortgage servicing rights		(564)		(572)
Other		(972)		(1,010)
Total liabilities		(5,403)		(6,263)
Valuation Allowance
Beginning balance		(1,220)		(1,220)
Decrease during period		431		-
Ending balance		(789)		(1,220)
Net deferred tax asset	$	12,037	$	12,084

The Company has unused business income tax credits of $2,749,000 that will begin to expire in 2028 and a state net operating loss of $23,011,000 that will begin to expire in 2023.  In addition, the Company has an AMT credit carryover of $1,351,000 with an unlimited carryover period.Management believes that the Company will be able to utilize the benefits recorded for the state loss carryforwards and federal credits within the allotted time periods, except for the amount represented by the valuation allowance. The valuation allowance has been recorded for the possible inability to use a portion of the state net operating loss carryover.

Retained earnings include approximately $14,743,000 for which no deferred income tax liability has been recognized.  This amount represents an allocation of income to bad debt deductions as of December 31, 1987 for tax purposes only.  Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which income would be subject to the then-current corporate income tax rate.  The unrecorded deferred income tax liability on the above amounts was approximately $5,013,000.

The Company’s federal and state income tax returns have been closed without audit by the IRS through the year ended December 31, 2012.

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Accumulated Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2016

Accumulated Other Comprehensive Income (Loss) [Abstract]

Accumulated Other Comprehensive Income (Loss)

Note 16:Accumulated Other Comprehensive Income (Loss)

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

	2016		2015
Net unrealized gain (loss) on securities available for sale	$	(1,009)	$	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		(866)		(905)
Net unrealized loss on derivative used for cash flow hedges		-		(1)
Net unrealized gain (loss) relating to defined benefit plan liability		30		(32)
		(1,845)		2,373
Tax expense		(591)		883
Net of tax amount	$	(1,254)	$	1,490

The following table presents the reclassification adjustments out of accumulated other comprehensive income (loss) that were included in net income in the Consolidated Statement of Income for the years ended December 31, 2016, 2015 and 2014.

	Amount Reclassified from Accumulated Other Comprehensive Income For the Year Ended December 31,
Details about Accumulated Other Comprehensive Income Components	2016		2015		2014		Affected Line Item in the Statements of Income
Unrealized gains on available for sale securities
Realized securities gains reclassified into income	$	1,023	$	436	$	313	Net realized gains on sale of available for sale securities
Related income tax expense		(348)		(148)		(106)	Income tax expense
Total reclassifications for the period, net of tax	$	675	$	288	$	207

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Commitments and Contingent Liabilities

12 Months Ended

Dec. 31, 2016

Commitments and Contingent Liabilities [Abstract]

Commitments and Contingent Liabilities

Note 17:Commitments and Contingent Liabilities

In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying financial statements.  The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments.  The Company uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated statements of financial condition.

Financial instruments whose contract amount represents credit risk as of December 31:

	2016		2015
Loan commitments	$	224,900	$	228,548
Standby letters of credit		2,541		2,464

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customer's credit worthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation.  Collateral held varies, but may include residential real estate, income-producing commercial properties, or other assets of the borrower.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

The Company and Bank are also subject to claims and lawsuits that arise primarily in the ordinary course of business.  It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position of the Company.

The Company has entered into employment agreements with certain officers that provide for the continuation of salary and certain benefits for a specified period of time under certain conditions. Under the terms of the agreement, these payments could occur in the event of a change in control of the Company.

Mortgage loans in the process of origination represent amounts that the Company plans to fund within a normal period of 60 to 90 days, and which are primarily intended for sale to investors in the secondary market.  Total mortgage loans in the process of origination amounted to $4,396,000and $6,457,000, and mortgage loans held for sale amounted to $4,063,000and $5,991,000, at December 31, 2016 and 2015, respectively.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2016

Stockholders' Equity [Abstract]

Stockholders' Equity

Note 18:Stockholders’ Equity

Without prior approval, current regulations allow the Bank to pay dividends to the Company not exceeding retained net income for the previous two calendar years and the current year.  In the event the Bank becomes unable to pay dividends to the Company, the Company may not be able to service its debt, pay its other obligations or pay dividends on its common stock.  At December 31, 2016, the Bank was able to pay dividends without prior regulatory approval.

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Regulatory Capital

12 Months Ended

Dec. 31, 2016

Regulatory Capital [Abstract]

Regulatory Capital

Note 19:Regulatory Capital

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 December 31, 2016 and 2015, 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).

The Company’s and Bank’s actual capital amounts and ratios are presented in the table below.

	December 31, 2016
		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	$	138,971	9.0	%	$	61,914	4.0	%		N/A	N/A
MutualBank		136,301	8.8			61,832	4.0		$	77,290	5.0	%
Common Equity Tier 1 Capital Level (2) :
MutualFirst Consolidated	$	136,606	11.9	%	$	51,729	4.5	%		N/A	N/A
MutualBank		136,301	11.9			51,696	4.5		$	74,672	6.5	%
Tier 1 Risk-Based Capital Level (3)  :
MutualFirst Consolidated	$	138,971	12.1	%	$	68,973	6.0	%		N/A	N/A
MutualBank		136,301	11.9			68,928	6.0		$	91,904	8.0	%
Total Risk-Based Capital Level (4)  :
MutualFirst Consolidated	$	151,353	13.2	%	$	91,963	8.0	%		N/A	N/A
MutualBank		148,683	12.9			91,904	8.0		$	114,880	10.0	%
(1)Tier 1 Capital to Average Total Assets of $1.5 billion for the Bank and Company at December 31, 2016.
(2)Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at December 31, 2016.
(3)Tier 1 Capital to Risk-Weighted Assets.
(4)Total Capital to Risk-Weighted Assets.

	December 31, 2015
		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	$	132,727	9.1	%	$	58,608	4.0	%		N/A	N/A
MutualBank		134,754	9.2			58,509	4.0		$	73,136	5.0	%
Common Equity Tier 1 Capital Level (2) :
MutualFirst Consolidated	$	131,520	12.5	%	$	47,331	4.5	%		N/A	N/A
MutualBank		134,754	12.8			47,309	4.5		$	68,336	6.5	%
Tier 1 Risk-Based Capital Level (2)  :
MutualFirst Consolidated	$	132,727	12.6	%	$	63,108	6.0	%		N/A	N/A
MutualBank		134,754	12.8			63,079	6.0		$	84,106	8.0	%
Total Risk-Based Capital Level (3)  :
MutualFirst Consolidated	$	145,368	13.8	%	$	84,144	8.0	%		N/A	N/A
MutualBank		147,395	14.0			84,106	8.0		$	105,132	10.0	%
(1) Tier 1 Capital to Average Total Assets of $1.5 billion for the Bank and Company at December 31, 2015.
(2)Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at December 31, 2015.
(3) Tier 1 Capital to Risk-Weighted Assets.
(4) Total Capital to Risk-Weighted Assets.

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Employee Benefits

12 Months Ended

Dec. 31, 2016

Employee Benefits [Abstract]

Employee Benefits

Note 20:Employee Benefits

The Company has a retirement savings 401(k) plan in which substantially all employees may participate.  The contributions are discretionary and determined annually.  The Company matches employees' contributions at the following rates: 100 percent of participant contributions up to 4% and 50 percent of participant contributions from 5-6%, not to exceed a maximum of 5% of their compensation.  The Company’s expense for the plan was $938,000,  $810,000 and $739,000 for 2016, 2015 and 2014, respectively.

The Company has an executive benefit plan and deferred compensation arrangements for the benefit of certain officers.  The Company also has deferred compensation arrangements with certain directors whereby, in lieu of previously receiving fees, the directors or their beneficiaries will be paid benefits for an established period following the director’s retirement or death.  These arrangements are informally funded by life insurance contracts which have been purchased by the Company.  The Company records a liability for these vested benefits based on the present value of future payments.  The Company’s expense for the plan was $676,000,  $669,000 and $730,000 for 2016, 2015 and 2014, respectively.

The Company has an ESOP covering substantially all of its employees.  During 2013, the ESOP reached maturity and the last of the shares were allocated in early 2014.  At December 31, 2016 and 2015,the Company had no unearned ESOP shares.  Shares were released to participants proportionately as ESOP debt was repaid.  The following table provides information on ESOP shares at December 31:

	2016	2015	2014
Allocated shares	403,649	417,848	417,848

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Stock Option Plans

12 Months Ended

Dec. 31, 2016

Stock Option Plans [Abstract]

Stock Option Plans

Note 21:Stock Option Plans

Under the Company’s stock option plans, which are  accounted for in accordance with FASB ASC 718, Stock Compensation, the Company grants selected executives and other key employees and directors incentive and non-qualified stock option awards that vest and become fully exercisable at the discretion of the Compensation Committee as the options are granted.  As of the end of the 2016, the Company is authorized to grant options under our stock option plan approved in 2008.  Under certain provisions of the plan, the number of shares available for grant may be increased without shareholder approval by the amount of shares surrendered as payment of the exercise price of the stock option and by the number of shares of common stock of the Company that could be repurchased by the Company using proceeds from the exercise of stock options.

The Company had a stock option plan that was approved in 2000 that expired in 2015.  Under the plan provisions, all option grants that have not been exercised or expired are still exercisable until the maturity or the participant forfeits the grant.  No additional grants of options can be made from this plan.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table.  Expected volatility is based on historical volatility of the Company’s stock and other factors.  The Company uses historical data to estimate timing of option exercises and employee terminations  within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes.  The expected term of options granted represents the period of time that options are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  The discount rate for post-vesting restrictions is estimated based on the Company’s credit-adjusted risk-free rate of return. 

The following is a summary of the status of the Company’s stock option plans and changes in these plansduring2016.

	2016
Options	Shares		Weighted- Average Exercise Price	Weighted-Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding, beginning of year	382,161	$	10.45
Exercised	77,600		12.58
Outstanding and exercisable, end of year	304,561	$	9.90	7.4 years	$	7,064

There were77,600,  186,059 and 118,823options exercised during the years ended December 31, 2016, 2015 and 2014.  There were no options granted during those periods.  The Company will fulfill options with authorized but unissued shares of stock from the 352,741shares the Company has authorized under the current shareholder-approved stock option and incentive plans.  There were 58,003 shares remaining to be granted under the current plan.  The Company will also fulfill options with authorized but unissued shares of stock from the 141,462 shares the Company has authorized under the 2000 stock option plan.  Outstanding options may continue to be exercised from that plan; however no further grants can be made.

Cash received from options exercised under all share-based payment arrangements for years ended December 31, 2016, 2015 and 2014 was $976,000,  $2.0 million and$1.3 million, respectively.  The intrinsic value on options exercised during the years ended December 31, 2016, 2015 and 2014 was $911,000,  $2.2 million and $1.0 million, respectively.

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Earnings Per Share

12 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

Earnings Per Share

Note 22:Earnings Per Share

Earnings per share were computed as follows:

	2016
		Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income available to common stockholders	$	13,241	7,391,681	$	1.79
Effect of Dilutive Securities
Stock options		-	147,157
Diluted Earnings Per Share
Net income available to common stockholders and assumed conversions	$	13,241	7,538,838	$	1.76

	2015
		Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income available to common stockholders	$	12,262	7,374,589	$	1.66
Effect of Dilutive Securities
Stock options		-	173,296
Diluted Earnings Per Share
Net income available to common stockholders and assumed conversions	$	12,262	7,547,885	$	1.62

	2014
		Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income available to common stockholders	$	11,046	7,160,700	$	1.54
Effect of Dilutive Securities
Stock options		-	231,131
Diluted Earnings Per Share
Net income available to common stockholders and assumed conversions	$	11,046	7,391,831	$	1.49

Options to purchase37,161 and 44,161shares of common stock were outstanding at December 31, 2015 and 2014, respectively, but were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares.As of December 31, 2016, the exercise price for all options was lower than the average market price of the common shares.

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Fair Values of Financial Instruments

12 Months Ended

Dec. 31, 2016

Fair Values of Financial Instruments [Abstract]

Fair Values of Financial Instruments

Note 23: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.

AvailableforSale 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.  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, 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 at fair value on a recurring basis and level within the ASC 820 fair value hierarchy in which the fair value measurements fall:

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2016
Mortgage-backed securities	$	92,517	$	-	$	92,517	$	-
Collateralized mortgage obligations		68,047		-		68,047		-
Municipal obligations		77,682		-		77,682		-
Corporate obligations		11,667		-		9,079		2,588
Available for sale securities	$	249,913	$	-	$	247,325	$	2,588

			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 years ended December 31, 2016, 2015 and 2014of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

		2016		2015		2014
Beginning balance	$	2,534	$	2,522	$	3,336
Total realized and unrealized gains (losses)
Included in net income		-		-		(68)
Included in other comprehensive income (loss)		54		12		2,098
Sales		-		-		(2,826)
Settlements		-		-		(18)
Ending balance	$	2,588	$	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	$	0	$	0	$	0

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.

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.

Other Real Estate Owned

The fair value of real estate is generally determined based on appraisals by qualified licensed appraisers.  The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach.  If an appraisal is not available, the fair value may be determined by using a cash flow analysis.

Other real estate owned is classified within Level 3 of the fair value hierarchy.

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall:

			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.

December 31, 2016	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,588	Discounted cash flow	Discount rate	7.0 - 8.0	%
				Constant prepayment rate	2.0	%
				Cumulative projected prepayments	40.0	%
				Probability of default	1.7 - 2.2	%
				Projected cures given deferral	0 - 15.0	%
				Loss severity	32.5 - 38.7	%

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
December 31, 2016		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	26,860	$	25,795	$	25,795	$	-	$	-
Interest-bearing time deposits		993		993		993
Loans held for sale		4,063		4,094		-		4,094		-
Loans, net		1,157,120		1,139,450		-		-		1,139,450
FHLB stock		10,925		10,925		-		10,925		-
Interest receivable		4,629		4,629		-		4,629		-
Liabilities
Deposits		1,153,382		1,152,030		779,577		-		372,453
FHLB advances		240,591		239,866		-		239,866		-
Other borrowings		4,189		4,189		-		4,189		-
Interest payable		350		350		-		350		-

					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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Condensed Financial Information (Parent Company Only)

12 Months Ended

Dec. 31, 2016

MutualFirst Financial, Inc. [Member]

Condensed Financial Information (Parent Company Only)

Note 24: Condensed Financial Information (Parent Company Only)

Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company:

Condensed Balance Sheets
	2016		2015
Assets
Cash on deposit with Bank	$	1,098	$	2,732
Cash on deposit with others		24		24
Total cash		1,122		2,756
Investment in common stock of subsidiaries		142,812		143,459
Deferred tax		146		214
Other assets		265		262
Total assets	$	144,345	$	146,691
Liabilities
Other borrowings	$	4,189	$	9,458
Other liabilities		118		208
Total liabilities		4,307		9,666
Stockholders' Equity		140,038		137,025
Total liabilities and stockholders' equity	$	144,345	$	146,691

Condensed Statements of Income
	2016		2015		2014
Income
Interest income from bank	$	-	$	1	$	1
Dividends from subsidiaries		12,000		3,600		3,500
Total income		12,000		3,601		3,501
Expenses		976		1,182		994
Income before income tax and equity in undistributed income of subsidiaries		11,024		2,419		2,507
Income tax benefit		(399)		(591)		(337)
Income before equity in undistributed income (distributions in excess of income) of subsidiaries		11,423		3,010		2,844
Equity in undistributed income (distributions in excess of income) of subsidiaries		1,818		9,252		8,202
Net Income Available to Common Shareholders	$	13,241	$	12,262	$	11,046

Condensed Statements of Comprehensive Income
	2016		2015		2014
Net income	$	13,241	$	12,262	$	11,046
Other comprehensive income:
Net unrealized holding gain (loss) on securities available for sale		(3,297)		(1,186)		8,921
Net unrealized gain on securities available for sale for which a portion of an other-than-temporary impairment has been recognized in income		39		12		381
Less: Reclassification adjustment for realized gains included in net income		(1,023)		(436)		(313)
Net unrealized gain on derivative used for cash flow hedges		1		108		150
Net unrealized gain (loss) relating to defined benefit plan		62		77		(209)
		(4,218)		(1,425)		8,930
Income tax (expense) benefit related to other comprehensive income		1,474		537		(3,137)
Other comprehensive income (loss)		(2,744)		(888)		5,793
Comprehensive income	$	10,497	$	11,374	$	16,839

Condensed Statements of Cash Flows
	2016		2015		2014
Operating Activities
Net income	$	13,241	$	12,262	$	11,046
Item not requiring cash
Deferred income tax benefit		200		(102)		159
(Equity in undistributed income) distributions in excess of income of subsidiaries		(1,818)		(9,252)		(8,202)
Other		(183)		13		19
Net cash provided by operating activities		11,440		2,921		3,022
Investing Activity
Investment in subsidiary		(100)		(250)		-
Net cash used in investing activity		(100)		(250)		-
Financing Activities
Repayment of other borrowings	$	(5,312)	$	(759)	$	(759)
Stock repurchased		(4,354)		-		-
Cash dividends		(4,284)		(3,550)		(2,297)
Proceeds from stock options exercised		976		2,011		1,347
Net cash used in financing activities		(12,974)		(2,298)		(1,709)
Net Change in Cash		(1,634)		373		1,313
Cash, Beginning of Year		2,756		2,383		1,070
Cash, End of Year	$	1,122	$	2,756	$	2,383

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Quarterly Results of Operations (Unaudited)

12 Months Ended

Dec. 31, 2016

Quarterly Results of Operations [Abstract]

Quarterly Results of Operations

Note 25: Quarterly Results of Operations (Unaudited)

Quarter Ended	Interest Income		Interest Expense		Net Interest Income		Provision for Loan Losses		Net Income Available to Common Shareholders		Basic Earnings Per Common Share		Diluted Earnings Per Common Share
2016
March 31	$	13,034	$	2,272	$	10,762	$	200	$	2,365	$	0.32	$	0.31
June 30		13,258		2,271		10,987		150		4,157		0.56		0.55
September 30		13,567		2,330		11,237		250		3,482		0.48		0.47
December 31		13,943		2,374		11,569		250		3,237		0.44		0.43
Total	$	53,802	$	9,247	$	44,555	$	850	$	13,241	$	1.79	$	1.76
2015
March 31	$	12,683	$	2,165	$	10,518	$	-	$	2,481	$	0.34	$	0.33
June 30		12,731		2,191		10,540		-		3,218		0.44		0.43
September 30		13,049		2,233		10,816		-		3,225		0.44		0.43
December 31		13,313		2,214		11,099		125		3,338		0.45		0.44
Total	$	51,776	$	8,803	$	42,973	$	125	$	12,262	$	1.66	$	1.62
2014
March 31	$	12,738	$	2,319	$	10,419	$	350	$	2,020	$	0.28	$	0.27
June 30		12,744		2,186		10,558		500		2,614		0.37		0.36
September 30		12,803		2,163		10,640		-		2,751		0.38		0.37
December 31		12,893		2,255		10,638		-		3,661		0.51		0.49
Total	$	51,178	$	8,923	$	42,255	$	850	$	11,046	$	1.54	$	1.49

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Nature of Operations and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Nature of Operations and Summary of Significant Accounting Policies [Abstract]

Consolidation

Consolidation - The consolidated financial statements include the accounts of the Company, the Bank, and the Bank’s subsidiaries, after elimination of all material intercompany transactions.

Cash Equivalents

Cash Equivalents - The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.  At December 31, 2016 and 2015, cash equivalents consisted primarily of money market accounts with brokers and checking accounts with government sponsored entities. 

At December 31, 2016, the Company’s cash accounts exceeded federally insured limits by approximately $6.7 million.  Included in this amount are uninsured accounts of approximately $2.9 million at the Federal Reserve Bank of Chicago and Federal Home Loan Bank of Indianapolis.

Interest-bearing Time Deposit

Interest-bearing time deposits – The fair value of interest-bearing time deposits approximates carrying value.

Derivative Instruments

Derivative Instruments  –The Company occasionally enters into derivative financial instruments as part of its interest rate risk strategies.  These derivative financial instruments consist primarily of interest rate swaps.  These instruments are carried at the fair value of the derivatives and reflects the estimated amounts that would have been received to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information.

The Company offers interest rate derivative products (e.g. interest rate swaps) to certain of its high-quality commercial borrowers.  This product allows customers to enter into an agreement with the Company to swap their variable rate loan to a fixed rate. These derivative products are designed to reduce, eliminate or modify the risk of changes in the borrower’s interest rate. The extension of credit incurred through the execution of these derivative products is subject to the same approvals and rigorous underwriting standards as the related traditional credit product. The Company limits its risk exposure to these products by entering into a mirror-image, offsetting swap agreement with a separate, well-capitalized and rated counterparty.  These transactions are ratified by the Asset Liability Committee. By using these interest rate swap arrangements, the Company is also better insulated from the interest rate risk associated with underwriting fixed-rate loans. These derivative do not qualify for hedge accounting. The derivatives are recorded on the balance sheet at fair value and changes in fair value of both the customer and the offsetting swap agreements are recorded (and essentially offset) in non-interest income.

Investment Securities

Investment Securities - Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost.  At December 31, 2016 and 2015, no securities were classified as held to maturity.  Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.  Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.When the Company does not intend to sell a debt security, and it is more likely than not that, the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.  For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

The Company’s consolidated statement of income reflects the full impairment (that is, the differences between the security’s amortized cost basis and fair value) on debt securities that the Company intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis.  For availableforsale and held-to-maturity debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income.  The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections. 

For equity securities, when the Company has decided to sell an impaired availableforsale security and does not expect the fair value of the security to fully recover before the expected time of sale, the security is deemed other-than-temporarily impaired in the period in which the decision to sell is made.  The Company recognizes an impairment loss when the impairment is deemed other than temporary even if a decision to sell has not been made.

Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses.  In estimating other-than-temporary losses, management considers the length of time and extent that fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair value.

Loans held for sale

Loans held for sale are carried at the lower of aggregate cost or market.  Market is determined using the aggregate method.  Net unrealized losses, if any, are recognized through a valuation allowance by charges to income based on the difference between estimated sales proceeds and aggregate cost.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on mortgage, consumer and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.  Past due status is based on contractual terms of the loan.  In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual 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.

Discounts and premiums on purchased residential real estate and commercial loans is amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments.  Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.

Allowance for loan losses

Allowance for loan losses -  The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.  Loan losses are charged against the allowance when management believes the inability to collect a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

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 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 historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior three years.  Management believes the three year historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed.

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 allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the ability to collect the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components.  The allocated component relates to loans that are classified as impaired.  For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-classified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process.  Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.  Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Premises and equipment

Premises and equipment are carried at cost net of accumulated depreciation.  Depreciation is computed using the straight-line method based principally on the estimated useful lives of the assets which range from 3 to 50 years.  Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.  Gains and losses on dispositions are included in current operations.

Federal Home Loan Bank stock

Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank (FHLB) system.  The required investment in the common stock is based on a predetermined formula, carried at cost and is evaluated for impairment.

Mortgage-servicing

Mortgage-servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets.  Under the servicing assets and liabilities accounting guidance, servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer.  The Company subsequently measures each class of servicing asset using the amortization method.  Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income.  The amortized assets are assessed for impairment based on fair value at each reporting date.

Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.  These variables change from quarter to quarter as market conditions and projected interest rates change, and may have an adverse impact on the value of the mortgage servicing right and may result in a reduction to noninterest income.

Each class of separately recognized servicing assets subsequently measured using the amortization method are evaluated and measured for impairment.  Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type.  Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche.  The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial measurement of impairment.  Changes in valuation allowances are reported with net servicing fees on the income statement.  Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.

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

Investment in limited partnerships

Investment in limited partnerships is recorded primarily on the proportional amortization method of accounting.  Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).

Intangible assets

Intangible assets are being amortized on an accelerated basis over periods ranging from three to 11 years.  Such assets are periodically evaluated as to the recoverability of their carrying value.

Income taxes

Income taxes areaccounted for in accordance with income tax accounting guidance.  The income tax accounting guidance results in two components of income tax expense:  current and deferred.  Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues.  The Companydetermines deferred income taxes using the balance sheet method.  Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. 

Deferred tax assetsare evaluated on a quarterly basis for recoverability based on all available evidence.This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between our future projected operating performance and our actual results.  We are required to establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized.  In determining the more-likely-than-not criterion, we evaluate all positive and negative available evidence as of the end of each reporting period.  Future adjustments to the deferred tax asset valuation allowance, if any, will be determined based upon changes in the expected realization of the net deferred tax assets.  The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income in either the carry back or carry forward periods under applicable tax laws.  Due to significant estimates utilized in establishing the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record adjustments to the valuation allowance in the near term if estimates of future taxable income during the carry forward period are reduced.  Such a charge could have a material adverse effect on our results of operations, financial condition, and capital position.

Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination.  The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.  A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.  The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment. 

The Company recognizes interest and penalties on income taxes as a component of income tax expense.

The Company files consolidated income tax returns with its subsidiaries.

Earnings per share

Earnings per share is computed based upon the weighted-average common and common equivalent shares outstanding during each year.

Comprehensive income

Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes.  Other comprehensive income includes unrealized gains (losses) on available for sale securities, unrealized gains (losses) on available for sale securities for which a portion of an other-than-temporary impairment has been recognized in income, unrealized and realized gains and losses in derivative financial instruments and changes in the funded status of defined benefit pension plans.

Stock options

Stock options - The Company has stock-based employee compensation plans, which are described more fully in Note 20.

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Investment Securities (Tables)

12 Months Ended

Dec. 31, 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 as follows:

	2016
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale Securities
Mortgage-backed securities	$	92,871	$	802	$	(1,156)	$	92,517
Collateralized mortgage obligations		68,621		269		(843)		68,047
Municipal obligations		77,474		1,716		(1,508)		77,682
Corporate obligations		12,822		78		(1,233)		11,667
Total investment securities	$	251,788	$	2,865	$	(4,740)	$	249,913

	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

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 December 31, 2016 and 2015:

	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	$	58,056	$	(1,156)	$	-	$	-	$	58,056	$	(1,156)
Collateralized mortgage obligations		41,769		(683)		4,688		(160)		46,457		(843)
Municipal obligations		31,907		(1,507)		337		(1)		32,244		(1,508)
Corporate obligations		-		-		7,076		(1,233)		7,076		(1,233)
Total temporarily impaired securities	$	131,732	$	(3,346)	$	12,101	$	(1,394)	$	143,833	$	(4,740)

	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 table provides information about debt securities for which only a credit loss was recognized in income and other losses are recorded in other comprehensive income.

	Accumulated Credit Losses
	2016		2015		2014
Credit losses on debt securities held
Beginning of period	$	109	$	109	$	1,205
Reductions related to actual losses incurred		-		-		-
Reductions for previous credit losses realized on securities sold during the year		-		-		(1,096)
As of December 31,	$	109	$	109	$	109

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

The amortized cost and fair value of securities available for sale at December 31, 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
One to five years	$	5,345	$	5,353
Five to ten years		14,386		14,861
After ten years		70,565		69,135
		90,296		89,349
Mortgage-backed securities		92,871		92,517
Collateralized mortgage obligations		68,621		68,047
Totals	$	251,788	$	249,913

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Loans and Allowance (Tables)

12 Months Ended

Dec. 31, 2016

Loans and Allowance [Abstract]

Schedule of Classes of Loans

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

	December 31,
	2016		2015
Real estate
Commercial	$	302,577	$	236,895
Commercial construction and development		22,453		15,744
Consumer closed end first mortgage		478,848		491,451
Consumer open end and junior liens		71,222		70,990
		875,100		815,080
Other loans
Consumer loans
Auto		18,939		15,480
Boat/RVs		141,602		123,621
Other		5,892		6,171
Commercial and industrial		131,103		123,043
		297,536		268,315
Total loans		1,172,636		1,083,395
Undisbursed loans in process		(8,691)		(7,432)
Unamortized deferred loan costs, net		5,557		4,882
Allowance for loan losses		(12,382)		(12,641)
Net loans	$	1,157,120	$	1,068,204

Non-Accrual Loans Segregated by Class of Loans

Year-end non-accrual loans, segregated by class of loans, were as follows:

	December 31,
	2016		2015
Real estate
Commercial	$	912	$	2,356
Commercial construction and development		-		-
Consumer closed end first mortgage		3,626		3,592
Consumer open end and junior liens		335		783
Consumer loans
Auto		5		-
Boat/RVs		224		81
Other		24		67
Commercial and industrial		18		25
	$	5,144	$	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 December 31, 2016 and 2015are as follows:

	December 31, 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 and Accruing
Real estate
Commercial	$	854	$	142	$	785	$	1,781	$	300,796	$	302,577	$
Commercial construction and development		-		-		-		-		22,453		22,453
Consumer closed end first mortgage		6,789		1,554		3,675		12,018		466,830		478,848		237
Consumer open end and junior liens		512		166		304		982		70,240		71,222
Consumer loans
Auto		103		25		5		133		18,806		18,939
Boat/RVs		1,376		305		213		1,894		139,708		141,602
Other		89		26		13		128		5,764		5,892
Commercial and industrial		497		32		8		537		130,566		131,103
	$	10,220	$	2,250	$	5,003	$	17,473	$	1,155,163	$	1,172,636	$	237

	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 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		-
	$	9,995	$	2,034	$	6,206	$	18,235	$	1,065,160	$	1,083,395	$	267

Impaired Loans

The following tables present impaired loans for the years ended December 31, 2016, 2015 and 2014:

	December 31, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	665	$	665	$	-	$	2,207	$	68
Commercial construction and development		822		822		-		874		40
Consumer closed end first mortgage		1,869		1,869		-		1,328		-
Consumer open end and junior liens		-		-		-		193		-
Commercial and industrial		187		187		-		204		1
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		416		-
Total
Real estate
Commercial	$	879	$	879	$	100	$	2,623	$	68
Commercial construction and development	$	822	$	822	$	-	$	874	$	40
Consumer closed end first mortgage	$	1,869	$	1,869	$	-	$	1,328	$	-
Consumer open end and junior liens	$	-	$	-	$	-	$	193	$	-
Commercial and industrial	$	187	$	187	$	-	$	204	$	1
Total	$	3,757	$	3,757	$	100	$	5,222	$	109

	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

As of December 31, 2014, there were no impaired loans with a valuation allowance. 

	December 31, 2014
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	4,933	$	4,933	$	-	$	3,776	$	161
Commercial construction and development		931		1,860		-		1,323		30
Consumer closed end first mortgage		1,138		1,138		-		1,142		8
Consumer open end and junior liens		-		-				100		3
Commercial and industrial		758		789		-		923		12
Total	$	7,760	$	8,720	$	-	$	7,264	$	214

Commercial and Retail Credit Exposure Credit Risk Profile by Internal Rating

	December 31, 2016
		Commercial								Consumer
		Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial		$	295,548	$	3,705	$	3,297	$	27							$	302,577
Commercial construction and development			21,782		254		417		-								22,453
Consumer closed end first mortgage										$	473,329	$	-	$	5,519		478,848
Consumer open end and junior liens											70,769		-		453		71,222
Other loans
Consumer loans
Auto											18,931		-		8		18,939
Boat/RVs											141,294		-		308		141,602
Other											5,859		-		33		5,892
Commercial and industrial			128,436		2,513		154		-								131,103
		$	445,766	$	6,472	$	3,868	$	27	$	710,182	$	-	$	6,321	$	1,172,636

	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 tables detail activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2016, 2015 and 2014.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses on other segments.

	December 31, 2016
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	7,090	$	2,683	$	2,868	$	12,641
Provision charged (credited) to expense		457		15		378		850
Losses charged off		(274)		(420)		(788)		(1,482)
Recoveries		85		25		263		373
Balance, end of period	$	7,358	$	2,303	$	2,721	$	12,382

	December 31, 2015
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	7,085	$	3,471	$	2,612	$	13,168
Provision charged to expense		(389)		(179)		693		125
Losses charged off		(104)		(643)		(640)		(1,387)
Recoveries		498		34		203		735
Balance, end of period	$	7,090	$	2,683	$	2,868	$	12,641

	December 31, 2014
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	8,148	$	3,124	$	2,140	$	13,412
Provision charged (credited) to expense		(1,273)		888		1,235		850
Losses charged off		(289)		(572)		(1,021)		(1,882)
Recoveries		499		31		258		788
Balance, end of period	$	7,085	$	3,471	$	2,612	$	13,168

	December 31, 2016
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,258		2,303		2,721		12,282
Total allowance for loan losses	$	7,358	$	2,303	$	2,721	$	12,382
Loan balances
Individually evaluated for impairment	$	1,888	$	1,869	$	-	$	3,757
Collectively evaluated for impairment		454,245		476,979		237,655		1,168,879
Gross loans	$	456,133	$	478,848	$	237,655	$	1,172,636

	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

	December 31, 2014
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		7,085		3,471		2,612		13,168
Total allowance for loan losses	$	7,085	$	3,471	$	2,612	$	13,168
Loan balances
Individually evaluated for impairment	$	6,622	$	1,138	$	-	$	7,760
Collectively evaluated for impairment		312,973		515,925		185,730		1,014,628
Gross loans	$	319,595	$	517,063	$	185,730	$	1,022,388

Troubled Debts Restructured

The following tables describe troubled debts restructured during the years ended December 31, 2016, 2015 and 2014.

	December 31, 2016
	No. of Loans		Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate
Commercial	1	$	406	$	406
Commercial construction and development	1		83		83
Consumer closed end first mortgage	14		881		911
Consumer open end and junior liens	1		39		39
Consumer loans
Auto	1		4		4
Boat/RV	3		56		56
Other	2		7		7

	December 31, 2015
	No. of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate
Commercial	4	$	2,399	$	2,406
Commercial construction and development	1		155		155
Consumer closed end first mortgage	8		287		287
Consumer open end and junior liens	3		51		51
Consumer loans
Auto	2		25		25
Commercial and industrial	1		88		83

	December 31, 2014
	No. of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Real estate
Commercial	6	$	1,229	$	1,248
Consumer closed end first mortgage	12		1,493		1,139
Consumer open end and junior liens	5		58		59
Commercial and industrial	2		193		223

Newly Restructured Loans by Types

Newly restructured loans by type for the years ended December 31, 2016, 2015 and 2014 are as follows:

	December 31, 2016
		Interest Only		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	406	$	-	$	406
Commercial construction and development		-		83		-		83
Consumer closed end first mortgage		-		47		864		911
Consumer open end junior lien		-		-		39		39
Consumer Loans
Auto		-		-		4		4
Boat/RV		-		48		8		56
Other		-		7		-		7

	December 31, 2015
		Interest Only		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	2,406	$	-	$	2,406
Commercial construction and development		-		-		155		155
Consumer closed end first mortgage		-		11		276		287
Consumer open end junior lien		-		51		-		51
Consumer Loans
Auto		-		25		-		25
Commercial and industrial		-		83		-		83

	December 31, 2014
		Interest Only		Term		Combination		Total Modification
Real Estate
Commercial	$	-	$	701	$	547	$	1,248
Consumer closed end first mortgage		101		-		1,038		1,139
Consumer open end junior lien		-		28		31		59
Consumer Loans
Commercial and industrial		-		223		-		223

Troubled Debts Restructured Defaulted

Defaults of any loans modified as troubled debt restructurings made in the years ended December 31, 2016, 2015 and 2014, respectively, are listed in the table below.  Defaults are defined as any loans that become 90 days past due.

	December 31, 2016
	No. of Loans	Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage	5	$	179
Consumer Loans
Boat/RV	1		7

	December 31, 2015
	No. of Loans	Post-Modification Outstanding Recorded Balance
Real Estate
Commercial	1	$	820

	December 31, 2014
	No. of Loans	Post-Modification Outstanding Recorded Balance
Real Estate
Consumer closed end first mortgage	4	$	663
Consumer open end and junior liens	1		23

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Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2016

Related Party Transactions [Abstract]

Aggregate Amount of Loans to Related Parties

The aggregate amount of loans, as defined, to such related parties was as follows:

	2016
Balances, January 1,	$	8,062
Change in composition		(14)
New loans, including renewals		5,358
Payments, etc., including renewals		(6,271)
Balances, December 31,	$	7,135

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2016

Premises and Equipment [Abstract]

Premises and Equipment

Major classifications of premises and equipment, stated at cost, are as follows:

	2016		2015
Cost
Land	$	8,074	$	12,393
Buildings and land improvements		19,264		26,651
Equipment		13,562		12,877
Total cost		40,900		51,921
Accumulated depreciation and amortization		(19,700)		(20,873)
Net	$	21,200	$	31,048

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Core Deposit and Other Intangibles (Tables)

12 Months Ended

Dec. 31, 2016

Core Deposit and Other Intangibles [Abstract]

Carrying Basis of Recognized Intangible Assets

The carrying basis of recognized intangible assets at December 31, 2016 and 2015, were:

		2016		2015
Core deposits	$	200	$	444
Other intangibles		191		367
	$	391	$	811

Estimated Amortization Expense

Estimated amortization expense for each of the nextthree years, which is the remaining life, is:

2017	$	264
2018		114
2019		13
	$	391

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Goodwill (Tables)

12 Months Ended

Dec. 31, 2016

Goodwill [Abstract]

Schedule of Goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2016 and 2015 were:

		2016		2015
Balance as of January 1	$	1,800	$	1,800
Goodwill acquired during the year		-		-
Balance as of December 31	$	1,800	$	1,800

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Deposits (Tables)

12 Months Ended

Dec. 31, 2016

Deposits [Abstract]

Deposits

Deposits were comprised of the following at December 31, 2016 and 2015:

	December 31,		December 31,
	2016		2015
Noninterest-bearing demand	$	178,046	$	179,542
Interest-bearing demand		292,977		267,089
Savings		136,314		131,578
Money market savings		173,305		162,551
Certificates and other time deposits of $100,000 or more		181,067		147,268
Other certificates		191,673		203,354
Total deposits	$	1,153,382	$	1,091,382

Certificates, Including Other Time Deposits

Certificates, including other time deposits of $100,000 or more, maturing in years ending December 31 are as follows:

2017	$	190,130
2018		48,689
2019		37,076
2020		58,507
2021		32,244
Thereafter		6,094
	$	372,740

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Federal Home Loan Bank Advances (Tables)

12 Months Ended

Dec. 31, 2016

Federal Home Loan Bank Advances [Abstract]

Federal Home Loan Bank Advances Maturing by Period

FHLB advances maturing in years ending December 31 are as follows:

2017	$	70,028
2018		39,030
2019		40,533
2020		36,500
2021		26,500
Thereafter		28,000
	$	240,591

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Other Borrowings (Tables)

12 Months Ended

Dec. 31, 2016

Other Borrowings [Abstract]

Components of Other Borrowings

Other borrowings consisted of the following components as of December 31:

	2016		2015
Note payable	$	-	$	5,312
Subordinated debenture, net of discount		4,189		4,146
Total	$	4,189	$	9,458

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Derivative Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2016

Derivative Financial Instruments [Abstract]

Amounts of Derivative Financial Instruments

The following table shows the amounts of derivative financial instruments at December 31, 2016 and 2015.

	Asset Derivatives
		December 31,					December 31,
			2016	2015				2016	2015
	Balance Sheet Location		Fair Value		Fair Value	Balance Sheet Location		Fair Value		Fair Value
Derivatives not designated as hedging instruments:
Interest rate contracts	Other assets	$	553	$	336	Other liabilities	$	553	$	336

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Loan Servicing (Tables)

12 Months Ended

Dec. 31, 2016

Loan Servicing [Abstract]

Unpaid Principal Balances of Loans Serviced

Loans serviced for others are not included in the accompanying consolidated balance sheets.  The unpaid principal balances of these loans consist of the following:

	2016		2015
Loans serviced for
Freddie Mac	$	301,263	$	295,613
Fannie Mae		7,355		11,535
FHLB		10,621		12,677
Other investors		1,551		1,763
	$	320,790	$	321,588

Mortgage-Servicing Rights

	2016		2015		2014
Mortgage-servicing rights
Balances, January 1	$	1,335	$	1,417	$	1,858
Servicing rights capitalized		482		458		278
Amortization of servicing rights		(466)		(540)		(719)
	$	1,351	$	1,335	$	1,417

Fair Value of Servicing Rights

The fair value of servicing rights subsequently measured using the amortization method was as follows:

	2016		2015		2014
Mortgage-servicing rights
Fair value, beginning of period	$	2,179	$	2,048	$	2,106
Fair value, end of period		2,110		2,179		2,048

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Income Tax (Tables)

12 Months Ended

Dec. 31, 2016

Income Tax [Abstract]

Provision for Income Taxes

The provision for income taxes includes these components:

	2016		2015		2014
Income tax expense
Currently payable
Federal	$	2,849	$	2,652	$	2,779
State		-		-		-
Deferred
Federal		1,317		1,706		867
State		220		220		220
Total income tax expense	$	4,386	$	4,578	$	3,866

Reconciliation of Income Tax Expenses At Federal Rate to Actual Tax Expense

A reconciliation of income tax expense at the federal statutory rate to actual tax expense is shown below:

	2016			2015			2014
Federal statutory income tax at 34%	$	5,993		$	5,721		$	4,897
Other than temporary impairment		-			-			(615)
Non tax captive insurance income		(319)			-			-
State taxes		145			145			145
Low income housing credits		(96)			(96)			(107)
Tax-exempt income		(1,404)			(1,111)			(818)
Other		67			(81)			364
Actual tax expense	$	4,386		$	4,578		$	3,866
Effective tax rate		24.88	%		27.21	%		25.93	%

Components of Deferred Assets

The components of the deferred asset included on the consolidated balance sheets were as follows:

	2016		2015
Assets
Allowance for loan losses	$	4,999	$	5,091
Deferred compensation		3,174		3,193
Business tax and AMT credit carryovers		4,100		4,776
Capital loss carryover		-		102
Net operating loss carryover		1,496		1,845
Goodwill impairment		1,780		2,188
Purchase accounting adjustments		1,010		1,060
Other-than-temporary-impairment, available for sale securities		37		37
Unrealized loss on securities available for sale		776		-
Other		857		1,275
Total assets		18,229		19,567
Liabilities
Unrealized gain on securities available for sale	$	-	$	(720)
Depreciation and amortization		(504)		(465)
FHLB stock		(385)		(358)
State income tax		(551)		(585)
Loan fees		(355)		(298)
Investments in limited partnerships		(2,072)		(2,255)
Mortgage servicing rights		(564)		(572)
Other		(972)		(1,010)
Total liabilities		(5,403)		(6,263)
Valuation Allowance
Beginning balance		(1,220)		(1,220)
Decrease during period		431		-
Ending balance		(789)		(1,220)
Net deferred tax asset	$	12,037	$	12,084

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Accumulated Other Comprehensive Income (Loss) (Tables)

12 Months Ended

Dec. 31, 2016

Accumulated Other Comprehensive Income (Loss) [Abstract]

Components of Accumulated Other Comprehensive Income

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

	2016		2015
Net unrealized gain (loss) on securities available for sale	$	(1,009)	$	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		(866)		(905)
Net unrealized loss on derivative used for cash flow hedges		-		(1)
Net unrealized gain (loss) relating to defined benefit plan liability		30		(32)
		(1,845)		2,373
Tax expense		(591)		883
Net of tax amount	$	(1,254)	$	1,490

Reclassification out of Accumulated Other Comprehensive Income (Loss)

The following table presents the reclassification adjustments out of accumulated other comprehensive income (loss) that were included in net income in the Consolidated Statement of Income for the years ended December 31, 2016, 2015 and 2014.

	Amount Reclassified from Accumulated Other Comprehensive Income For the Year Ended December 31,
Details about Accumulated Other Comprehensive Income Components	2016		2015		2014		Affected Line Item in the Statements of Income
Unrealized gains on available for sale securities
Realized securities gains reclassified into income	$	1,023	$	436	$	313	Net realized gains on sale of available for sale securities
Related income tax expense		(348)		(148)		(106)	Income tax expense
Total reclassifications for the period, net of tax	$	675	$	288	$	207

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Commitments and Contingent Liabilities (Tables)

12 Months Ended

Dec. 31, 2016

Commitments and Contingent Liabilities [Abstract]

Financial Instruments Contract Amount That Represents Credit Risk

Financial instruments whose contract amount represents credit risk as of December 31:

	2016		2015
Loan commitments	$	224,900	$	228,548
Standby letters of credit		2,541		2,464

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Regulatory Capital (Tables)

12 Months Ended

Dec. 31, 2016

Regulatory Capital [Abstract]

Actual Capital Amounts and Ratios

The Company’s and Bank’s actual capital amounts and ratios are presented in the table below.

	December 31, 2016
		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	$	138,971	9.0	%	$	61,914	4.0	%		N/A	N/A
MutualBank		136,301	8.8			61,832	4.0		$	77,290	5.0	%
Common Equity Tier 1 Capital Level (2) :
MutualFirst Consolidated	$	136,606	11.9	%	$	51,729	4.5	%		N/A	N/A
MutualBank		136,301	11.9			51,696	4.5		$	74,672	6.5	%
Tier 1 Risk-Based Capital Level (3)  :
MutualFirst Consolidated	$	138,971	12.1	%	$	68,973	6.0	%		N/A	N/A
MutualBank		136,301	11.9			68,928	6.0		$	91,904	8.0	%
Total Risk-Based Capital Level (4)  :
MutualFirst Consolidated	$	151,353	13.2	%	$	91,963	8.0	%		N/A	N/A
MutualBank		148,683	12.9			91,904	8.0		$	114,880	10.0	%
(1)Tier 1 Capital to Average Total Assets of $1.5 billion for the Bank and Company at December 31, 2016.
(2)Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at December 31, 2016.
(3)Tier 1 Capital to Risk-Weighted Assets.
(4)Total Capital to Risk-Weighted Assets.

	December 31, 2015
		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	$	132,727	9.1	%	$	58,608	4.0	%		N/A	N/A
MutualBank		134,754	9.2			58,509	4.0		$	73,136	5.0	%
Common Equity Tier 1 Capital Level (2) :
MutualFirst Consolidated	$	131,520	12.5	%	$	47,331	4.5	%		N/A	N/A
MutualBank		134,754	12.8			47,309	4.5		$	68,336	6.5	%
Tier 1 Risk-Based Capital Level (2)  :
MutualFirst Consolidated	$	132,727	12.6	%	$	63,108	6.0	%		N/A	N/A
MutualBank		134,754	12.8			63,079	6.0		$	84,106	8.0	%
Total Risk-Based Capital Level (3)  :
MutualFirst Consolidated	$	145,368	13.8	%	$	84,144	8.0	%		N/A	N/A
MutualBank		147,395	14.0			84,106	8.0		$	105,132	10.0	%
(1) Tier 1 Capital to Average Total Assets of $1.5 billion for the Bank and Company at December 31, 2015.
(2)Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at December 31, 2015.
(3) Tier 1 Capital to Risk-Weighted Assets.
(4) Total Capital to Risk-Weighted Assets.

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Employee Benefits (Tables)

12 Months Ended

Dec. 31, 2016

Employee Benefits [Abstract]

Information on Employee Stock Ownership Plan Shares

The following table provides information on ESOP shares at December 31:

	2016	2015	2014
Allocated shares	403,649	417,848	417,848

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Stock Option Plans (Tables)

12 Months Ended

Dec. 31, 2016

Stock Option Plans [Abstract]

Summary of Status and Changes in Stock Option Plan

The following is a summary of the status of the Company’s stock option plans and changes in these plansduring2016.

	2016
Options	Shares		Weighted- Average Exercise Price	Weighted-Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding, beginning of year	382,161	$	10.45
Exercised	77,600		12.58
Outstanding and exercisable, end of year	304,561	$	9.90	7.4 years	$	7,064

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Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

Schedule of Earnings Per Share

Earnings per share were computed as follows:

	2016
		Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income available to common stockholders	$	13,241	7,391,681	$	1.79
Effect of Dilutive Securities
Stock options		-	147,157
Diluted Earnings Per Share
Net income available to common stockholders and assumed conversions	$	13,241	7,538,838	$	1.76

	2015
		Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income available to common stockholders	$	12,262	7,374,589	$	1.66
Effect of Dilutive Securities
Stock options		-	173,296
Diluted Earnings Per Share
Net income available to common stockholders and assumed conversions	$	12,262	7,547,885	$	1.62

	2014
		Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income available to common stockholders	$	11,046	7,160,700	$	1.54
Effect of Dilutive Securities
Stock options		-	231,131
Diluted Earnings Per Share
Net income available to common stockholders and assumed conversions	$	11,046	7,391,831	$	1.49

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Fair Values of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 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 at fair value on a recurring basis and level within the ASC 820 fair value hierarchy in which the fair value measurements fall:

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2016
Mortgage-backed securities	$	92,517	$	-	$	92,517	$	-
Collateralized mortgage obligations		68,047		-		68,047		-
Municipal obligations		77,682		-		77,682		-
Corporate obligations		11,667		-		9,079		2,588
Available for sale securities	$	249,913	$	-	$	247,325	$	2,588

			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 years ended December 31, 2016, 2015 and 2014of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

		2016		2015		2014
Beginning balance	$	2,534	$	2,522	$	3,336
Total realized and unrealized gains (losses)
Included in net income		-		-		(68)
Included in other comprehensive income (loss)		54		12		2,098
Sales		-		-		(2,826)
Settlements		-		-		(18)
Ending balance	$	2,588	$	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	$	0	$	0	$	0

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

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall:

			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.

December 31, 2016	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,588	Discounted cash flow	Discount rate	7.0 - 8.0	%
				Constant prepayment rate	2.0	%
				Cumulative projected prepayments	40.0	%
				Probability of default	1.7 - 2.2	%
				Projected cures given deferral	0 - 15.0	%
				Loss severity	32.5 - 38.7	%

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
December 31, 2016		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	26,860	$	25,795	$	25,795	$	-	$	-
Interest-bearing time deposits		993		993		993
Loans held for sale		4,063		4,094		-		4,094		-
Loans, net		1,157,120		1,139,450		-		-		1,139,450
FHLB stock		10,925		10,925		-		10,925		-
Interest receivable		4,629		4,629		-		4,629		-
Liabilities
Deposits		1,153,382		1,152,030		779,577		-		372,453
FHLB advances		240,591		239,866		-		239,866		-
Other borrowings		4,189		4,189		-		4,189		-
Interest payable		350		350		-		350		-

					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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Condensed Financial Information (Parent Company Only) (Tables) - MutualFirst Financial, Inc. [Member]

12 Months Ended

Dec. 31, 2016

Condensed Balance Sheets

Condensed Balance Sheets
	2016		2015
Assets
Cash on deposit with Bank	$	1,098	$	2,732
Cash on deposit with others		24		24
Total cash		1,122		2,756
Investment in common stock of subsidiaries		142,812		143,459
Deferred tax		146		214
Other assets		265		262
Total assets	$	144,345	$	146,691
Liabilities
Other borrowings	$	4,189	$	9,458
Other liabilities		118		208
Total liabilities		4,307		9,666
Stockholders' Equity		140,038		137,025
Total liabilities and stockholders' equity	$	144,345	$	146,691

Condensed Statements of Income

Condensed Statements of Income
	2016		2015		2014
Income
Interest income from bank	$	-	$	1	$	1
Dividends from subsidiaries		12,000		3,600		3,500
Total income		12,000		3,601		3,501
Expenses		976		1,182		994
Income before income tax and equity in undistributed income of subsidiaries		11,024		2,419		2,507
Income tax benefit		(399)		(591)		(337)
Income before equity in undistributed income (distributions in excess of income) of subsidiaries		11,423		3,010		2,844
Equity in undistributed income (distributions in excess of income) of subsidiaries		1,818		9,252		8,202
Net Income Available to Common Shareholders	$	13,241	$	12,262	$	11,046

Condensed Statements of Comprehensive Income

Condensed Statements of Comprehensive Income
	2016		2015		2014
Net income	$	13,241	$	12,262	$	11,046
Other comprehensive income:
Net unrealized holding gain (loss) on securities available for sale		(3,297)		(1,186)		8,921
Net unrealized gain on securities available for sale for which a portion of an other-than-temporary impairment has been recognized in income		39		12		381
Less: Reclassification adjustment for realized gains included in net income		(1,023)		(436)		(313)
Net unrealized gain on derivative used for cash flow hedges		1		108		150
Net unrealized gain (loss) relating to defined benefit plan		62		77		(209)
		(4,218)		(1,425)		8,930
Income tax (expense) benefit related to other comprehensive income		1,474		537		(3,137)
Other comprehensive income (loss)		(2,744)		(888)		5,793
Comprehensive income	$	10,497	$	11,374	$	16,839

Condensed Statements of Cash Flows

Condensed Statements of Cash Flows
	2016		2015		2014
Operating Activities
Net income	$	13,241	$	12,262	$	11,046
Item not requiring cash
Deferred income tax benefit		200		(102)		159
(Equity in undistributed income) distributions in excess of income of subsidiaries		(1,818)		(9,252)		(8,202)
Other		(183)		13		19
Net cash provided by operating activities		11,440		2,921		3,022
Investing Activity
Investment in subsidiary		(100)		(250)		-
Net cash used in investing activity		(100)		(250)		-
Financing Activities
Repayment of other borrowings	$	(5,312)	$	(759)	$	(759)
Stock repurchased		(4,354)		-		-
Cash dividends		(4,284)		(3,550)		(2,297)
Proceeds from stock options exercised		976		2,011		1,347
Net cash used in financing activities		(12,974)		(2,298)		(1,709)
Net Change in Cash		(1,634)		373		1,313
Cash, Beginning of Year		2,756		2,383		1,070
Cash, End of Year	$	1,122	$	2,756	$	2,383

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Quarterly Results of Operations (Tables)

12 Months Ended

Dec. 31, 2016

Quarterly Results of Operations [Abstract]

Schedule of Quarterly Financial Information

Quarter Ended	Interest Income		Interest Expense		Net Interest Income		Provision for Loan Losses		Net Income Available to Common Shareholders		Basic Earnings Per Common Share		Diluted Earnings Per Common Share
2016
March 31	$	13,034	$	2,272	$	10,762	$	200	$	2,365	$	0.32	$	0.31
June 30		13,258		2,271		10,987		150		4,157		0.56		0.55
September 30		13,567		2,330		11,237		250		3,482		0.48		0.47
December 31		13,943		2,374		11,569		250		3,237		0.44		0.43
Total	$	53,802	$	9,247	$	44,555	$	850	$	13,241	$	1.79	$	1.76
2015
March 31	$	12,683	$	2,165	$	10,518	$	-	$	2,481	$	0.34	$	0.33
June 30		12,731		2,191		10,540		-		3,218		0.44		0.43
September 30		13,049		2,233		10,816		-		3,225		0.44		0.43
December 31		13,313		2,214		11,099		125		3,338		0.45		0.44
Total	$	51,776	$	8,803	$	42,973	$	125	$	12,262	$	1.66	$	1.62
2014
March 31	$	12,738	$	2,319	$	10,419	$	350	$	2,020	$	0.28	$	0.27
June 30		12,744		2,186		10,558		500		2,614		0.37		0.36
September 30		12,803		2,163		10,640		-		2,751		0.38		0.37
December 31		12,893		2,255		10,638		-		3,661		0.51		0.49
Total	$	51,178	$	8,923	$	42,255	$	850	$	11,046	$	1.54	$	1.49

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Nature of Operations and Summary of Significant Accounting Policies (Narrative) (Details)	12 Months Ended
	Dec. 31, 2016 USD ($)
Nature Of Business And Summary Of Significant Accounting Policies [Line Items]
Uninsured accounts	$ 6,700,000
Premises and equipment depreciation method used	straight-line
Held-to-maturity securities	$ 0
Minimum [Member]
Nature Of Business And Summary Of Significant Accounting Policies [Line Items]
Premises and equipment estimated useful lives	3 years
Intangible assets amortization period	3 years
Maximum [Member]
Nature Of Business And Summary Of Significant Accounting Policies [Line Items]
Premises and equipment estimated useful lives	50 years
Intangible assets amortization period	11 years
Federal Reserve Bank of Chicago and Federal Home Loan Bank of Indianapolis
Nature Of Business And Summary Of Significant Accounting Policies [Line Items]
Uninsured accounts	$ 2,900,000

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Restriction on Cash (Narrative) (Details)	Dec. 31, 2016 USD ($)
Restriction on Cash [Abstract]
Cash and cash equivalent reserved amount	$ 2,271,000

XML

Investment Securities (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Investment [Line Items]
Fair value of investments reported at less than historical cost	$ 143,800,000	$ 97,600,000
Percentage of Bank portfolio	57.60%	37.40%
Securities pledged as collateral	$ 0	$ 0
Proceeds from sales of securities, available for sale	57,037,000	23,109,000	$ 28,317,000
Gross realized gain on sale of securities	1,094,000	436,000	1,176,000
Gross realized losses on sale of securities	$ 71,000	$ 0	$ 863,000
Banks, thrifts or other depository institutions to all projected defaults
Investment [Line Items]
Collateral recovery probability percentage	10.00%
Insurance Companies to all projected insurance defaults
Investment [Line Items]
Collateral recovery probability percentage	15.00%

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Investment Securities (Amortized Cost and Fair Values of Securities ) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 251,788	$ 258,732
Gross Unrealized Gains	2,865	4,881
Gross Unrealized Losses	(4,740)	(2,475)
Fair Value	249,913	261,138
Mortgage-backed securities, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	92,871	106,524
Gross Unrealized Gains	802	1,562
Gross Unrealized Losses	(1,156)	(248)
Fair Value	92,517	107,838
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	68,621	84,976
Gross Unrealized Gains	269	537
Gross Unrealized Losses	(843)	(861)
Fair Value	68,047	84,652
Municipals
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	77,474	54,427
Gross Unrealized Gains	1,716	2,781
Gross Unrealized Losses	(1,508)	(20)
Fair Value	77,682	57,188
Corporate obligations
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	12,822	12,805
Gross Unrealized Gains	78	1
Gross Unrealized Losses	(1,233)	(1,346)
Fair Value	$ 11,667	$ 11,460

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Investment Securities (Investments Gross Unrealized Losses and Fair Value in Continuous Unrealized Loss Position) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	$ 143,800	$ 97,600
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	41,769	27,457
Less than 12 months, Unrealized Losses	(683)	(281)
12 months or more, Fair Value	4,688	21,271
12 months or more, Unrealized Losses	(160)	(580)
Total, Fair Value	46,457	48,728
Total, Unrealized Losses	(843)	(861)
Municipals
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	31,907	2,739
Less than 12 months, Unrealized Losses	(1,507)	(17)
12 months or more, Fair Value	337	491
12 months or more, Unrealized Losses	(1)	(3)
Total, Fair Value	32,244	3,230
Total, Unrealized Losses	(1,508)	(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	7,076	2,534
12 months or more, Unrealized Losses	(1,233)	(1,271)
Total, Fair Value	7,076	6,959
Total, Unrealized Losses	(1,233)	(1,346)
Total temporarily impaired securities
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	131,732	73,270
Less than 12 months, Unrealized Losses	(3,346)	(621)
12 months or more, Fair Value	12,101	24,296
12 months or more, Unrealized Losses	(1,394)	(1,854)
Total, Fair Value	143,833	97,566
Total, Unrealized Losses	(4,740)	(2,475)
Mortgage-backed securities, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	58,056	38,649
Less than 12 months, Unrealized Losses	(1,156)	(248)
Total, Fair Value	58,056	38,649
Total, Unrealized Losses	$ (1,156)	$ (248)

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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	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Investment Securities [Abstract]
Credit losses on debt securities held, beginning of period	$ 109	$ 109	$ 1,205
Reductions related to actual losses incurred
Reductions for previous credit losses realized on securities sold during the year			(1,096)
Credit losses on debt securities held, end of period	$ 109	$ 109	$ 109

XML

Investment Securities (Amortized Cost and Fair Value of Available-for-Sale Securities by Contractual Maturity) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Security obligations due, amortized cost, One to five years	$ 5,345
Security obligations due, amortized cost, Five to ten years	14,386
Security obligations due, amortized cost, After ten years	70,565
Total security obligations due, amortized cost	90,296
Available for sale, amortized cost	251,788	$ 258,732
Security obligations due, Fair value, One to five years	5,353
Security obligations due, Fair value, Five to ten years	14,861
Security obligations due, Fair value, After ten years	69,135
Total Security obligations due, Fair value	89,349
Investment securities available for sale (carried at fair value)	249,913	261,138
Mortgage-backed securities, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Available for sale, amortized cost	92,871	106,524
Investment securities available for sale (carried at fair value)	92,517	107,838
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Available for sale, amortized cost	68,621	84,976
Investment securities available for sale (carried at fair value)	$ 68,047	$ 84,652

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Loans and Allowance (Narrative) (Details)	Dec. 31, 2016 USD ($)
Loans and Allowance [Abstract]
Loans receivable held-for-sale, amount	$ 552,000
Mortgage loans in process of foreclosure, amount	$ 1,900,000

XML

Loans and Allowance (Categories of Loans) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,172,636	$ 1,083,395	$ 1,022,388
Undisbursed loans in process	(8,691)	(7,432)
Unamortized deferred loan costs, net	5,557	4,882
Allowance for loan losses	(12,382)	(12,641)	$ (13,168)	$ (13,412)
Net loans	1,157,120	1,068,204
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	302,577	236,895
Construction Loans [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	22,453	15,744
First Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	478,848
First Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	478,848	491,451
Second Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	71,222
Second Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	71,222	70,990
Automobile Loan [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	18,939	15,480
Boat/RVs [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	141,602	123,621
Other [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,892	6,171
Commercial and Industrial [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	131,103	123,043
Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	875,100	815,080
Real Estate [Member] | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	302,577	236,895
Real Estate [Member] | Construction Loans [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	22,453	15,744
Real Estate [Member] | First Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	478,848	491,451
Real Estate [Member] | Second Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	71,222	70,990
Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	297,536	268,315
Other [Member] | Automobile Loan [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	18,939	15,480
Other [Member] | Boat/RVs [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	141,602	123,621
Other [Member] | Other [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	5,892	6,171
Other [Member] | Commercial and Industrial [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 131,103	$ 123,043

XML

Loans and Allowance (Non-Accrual Loan, Segregated by Class of Loans) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 5,144	$ 6,904
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	912	2,356
First Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	3,626	3,592
Second Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	335	783
Automobile Loan [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	5
Boat/RVs [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	224	81
Other [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	24	67
Commercial and Industrial [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 18	$ 25

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Loans and Allowance (Age Analysis of Past Due Loans Segregated by Class of Loans) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 17,473	$ 18,235
Current	1,155,163	1,065,160
Total loans receivable	1,172,636	1,083,395	$ 1,022,388
Total Loans > 90 Days or More and Accruing	237	267
30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	10,220	9,995
60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,250	2,034
90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	5,003	6,206
First Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total loans receivable	478,848
Second Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total loans receivable	71,222
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,781	3,154
Current	300,796	233,741
Total loans receivable	302,577	236,895
Commercial Real Estate [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	854	922
Commercial Real Estate [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	142	20
Commercial Real Estate [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	785	2,212
Commercial Segment [Member] | Construction Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	22,453	15,744
Total loans receivable	22,453	15,744
Commercial Segment [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	537	580
Current	130,566	122,463
Total loans receivable	131,103	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	497	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	32	383
Commercial Segment [Member] | Commercial and Industrial [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	8	5
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	12,018	11,691
Current	466,830	479,760
Total loans receivable	478,848	491,451
Total Loans > 90 Days or More and Accruing	237	267
Consumer [Member] | First Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	6,789	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	1,554	1,328
Consumer [Member] | First Mortgage [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,675	3,091
Consumer [Member] | Second Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	982	1,248
Current	70,240	69,742
Total loans receivable	71,222	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	512	296
Consumer [Member] | Second Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	166	187
Consumer [Member] | Second Mortgage [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	304	765
Consumer [Member] | Automobile Loan [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	133	89
Current	18,806	15,391
Total loans receivable	18,939	15,480
Consumer [Member] | Automobile Loan [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	103	89
Consumer [Member] | Automobile Loan [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	25
Consumer [Member] | Automobile Loan [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	5
Consumer [Member] | Boat/RVs [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,894	1,308
Current	139,708	122,313
Total loans receivable	141,602	123,621
Consumer [Member] | Boat/RVs [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,376	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	305	102
Consumer [Member] | Boat/RVs [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	213	71
Consumer [Member] | Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	128	165
Current	5,764	6,006
Total loans receivable	5,892	6,171
Consumer [Member] | Other [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	89	89
Consumer [Member] | Other [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	26	14
Consumer [Member] | Other [Member] | 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 13	$ 62

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Loans and Allowance (Impaired Loans) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance			$ 7,760
Unpaid principal balance			8,720
Average investment in impaired loans			7,264
Interest income recognized			214
Impaired Financing Receivable With Related Allowance [Abstract]
Specific Allowance	$ 100	$ 100
Interest income recognized		225
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	3,757	6,700
Unpaid principal balance, total	3,757	6,700
Average investment in impaired loans, total	5,222	7,578
Interest income recognized, total	109
Commercial Real Estate [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	665	3,608	4,933
Unpaid principal balance	665	3,608	4,933
Average investment in impaired loans	2,207	4,115	3,776
Interest income recognized	68	172	161
Impaired Financing Receivable With Related Allowance [Abstract]
Recorded balance	214	676
Unpaid principal balance	214	676
Specific Allowance	100	100
Average investment in impaired loans	416	793
Interest income recognized		20
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	879	4,284
Unpaid principal balance, total	879	4,284
Average investment in impaired loans, total	2,623	4,908
Interest income recognized, total	68	192
Commercial Segment [Member] | Construction Loans [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	822	595	931
Unpaid principal balance	822	595	1,860
Average investment in impaired loans	874	735	1,323
Interest income recognized	40	31	30
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	822	595
Unpaid principal balance, total	822	595
Average investment in impaired loans, total	874	735
Interest income recognized, total	40	31
Commercial Segment [Member] | Commercial and Industrial [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	187	214	758
Unpaid principal balance	187	214	789
Average investment in impaired loans	204	423	923
Interest income recognized	1	2	12
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	187	214
Unpaid principal balance, total	187	214
Average investment in impaired loans, total	204	423
Interest income recognized, total	1	2
Consumer [Member] | First Mortgage [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	1,869	1,126	1,138
Unpaid principal balance	1,869	1,126	1,138
Average investment in impaired loans	1,328	1,131	1,142
Interest income recognized			8
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	1,869	1,126
Unpaid principal balance, total	1,869	1,126
Average investment in impaired loans, total	1,328	1,131
Consumer [Member] | Second Mortgage [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance		481
Unpaid principal balance		481
Average investment in impaired loans	193		100
Interest income recognized			$ 3
Impaired Financing Receivable With Related Allowance [Abstract]
Average investment in impaired loans		381
Impaired Financing Receivables Total [Abstract]
Recorded balance, total		481
Unpaid principal balance, total		481
Average investment in impaired loans, total	$ 193	$ 381

XML

Loans and Allowance (Commercial and Retail Credit Exposure Credit Risk Profile by Internal Rating) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 1,172,636	$ 1,083,395	$ 1,022,388
First Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	478,848
Second Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	71,222
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	302,577	236,895
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	295,548	226,439
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,705	4,137
Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,297	6,319
Commercial Real Estate [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	27
Commercial Segment [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	445,766	359,965
Commercial Segment [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	6,472	8,746
Commercial Segment [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,868	6,971
Commercial Segment [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	27
Commercial Segment [Member] | Construction Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	22,453	15,744
Commercial Segment [Member] | Construction Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	21,782	13,986
Commercial Segment [Member] | Construction Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	254	1,309
Commercial Segment [Member] | Construction Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	417	449
Commercial Segment [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	131,103	123,043
Commercial Segment [Member] | Commercial and Industrial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	128,436	119,540
Commercial Segment [Member] | Commercial and Industrial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	2,513	3,300
Commercial Segment [Member] | Commercial and Industrial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	154	203
Consumer [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	710,182	699,811
Consumer [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	6,321	7,902
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	478,848	491,451
Consumer [Member] | First Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	473,329	484,658
Consumer [Member] | First Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	5,519	6,793
Consumer [Member] | Second Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	71,222	70,990
Consumer [Member] | Second Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	70,769	70,086
Consumer [Member] | Second Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	453	904
Consumer [Member] | Automobile Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	18,939	15,480
Consumer [Member] | Automobile Loan [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	18,931	15,480
Consumer [Member] | Automobile Loan [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	8
Consumer [Member] | Boat/RVs [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	141,602	123,621
Consumer [Member] | Boat/RVs [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	141,294	123,490
Consumer [Member] | Boat/RVs [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	308	131
Consumer [Member] | Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	5,892	6,171
Consumer [Member] | Other [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	5,859	6,097
Consumer [Member] | Other [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 33	$ 74

XML

Loans and Allowance (Activity in Allowance for Loan Losses by Portfolio Segment) (Details) - USD ($) $ in Thousands	3 Months Ended							12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period				$ 12,641			$ 13,412	$ 12,641	$ 13,168	$ 13,412
Provision charged (credited) to expense	$ 250	$ 250	$ 150	200	$ 125	$ 500	350	850	125	850
Losses charged off								(1,482)	(1,387)	(1,882)
Recoveries								373	735	788
Allowance for loan losses, End of period	12,382				12,641			12,382	12,641	13,168
Allowance for loan losses, individually evaluated for impairment, Ending balance											$ 100	$ 100
Allowance for loan losses, collectively evaluated for impairment, Ending balance											12,282	12,541	13,168
Total allowance for loan losses	12,382			12,641	12,641		13,412	12,641	13,168	13,412	12,382	12,641	13,168
Loans, individually evaluated for impairment, Ending balance											3,757	6,700	7,760
Loans, collectively evaluated for impairment, Ending balance											1,168,879	1,076,695	1,014,628
Total loans receivable											1,172,636	1,083,395	1,022,388
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period				7,090			8,148	7,090	7,085	8,148
Provision charged (credited) to expense								457	(389)	(1,273)
Losses charged off								(274)	(104)	(289)
Recoveries								85	498	499
Allowance for loan losses, End of period	7,358				7,090			7,358	7,090	7,085
Allowance for loan losses, individually evaluated for impairment, Ending balance											100	100
Allowance for loan losses, collectively evaluated for impairment, Ending balance											7,258	6,990	7,085
Total allowance for loan losses	7,358			7,090	7,090		8,148	7,090	7,085	8,148	7,358	7,090	7,085
Loans, individually evaluated for impairment, Ending balance											1,888	5,093	6,622
Loans, collectively evaluated for impairment, Ending balance											454,245	370,589	312,973
Total loans receivable											456,133	375,682	319,595
Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period				2,683			3,124	2,683	3,471	3,124
Provision charged (credited) to expense								15	(179)	888
Losses charged off								(420)	(643)	(572)
Recoveries								25	34	31
Allowance for loan losses, End of period	2,303				2,683			2,303	2,683	3,471
Allowance for loan losses, individually evaluated for impairment, Ending balance
Allowance for loan losses, collectively evaluated for impairment, Ending balance											2,303	2,683	3,471
Total allowance for loan losses	2,303			2,683	2,683		3,124	2,683	3,471	3,124	2,303	2,683	3,471
Loans, individually evaluated for impairment, Ending balance											1,869	1,126	1,138
Loans, collectively evaluated for impairment, Ending balance											476,979	490,325	515,925
Total loans receivable											478,848	491,451	517,063
Consumer Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period				2,868			2,140	2,868	2,612	2,140
Provision charged (credited) to expense								378	693	1,235
Losses charged off								(788)	(640)	(1,021)
Recoveries								263	203	258
Allowance for loan losses, End of period	2,721				2,868			2,721	2,868	2,612
Allowance for loan losses, individually evaluated for impairment, Ending balance
Allowance for loan losses, collectively evaluated for impairment, Ending balance											2,721	2,868	2,612
Total allowance for loan losses	$ 2,721			$ 2,868	$ 2,868		$ 2,140	$ 2,868	$ 2,612	$ 2,140	2,721	2,868	2,612
Loans, individually evaluated for impairment, Ending balance												481
Loans, collectively evaluated for impairment, Ending balance											237,655	215,781	185,730
Total loans receivable											$ 237,655	$ 216,262	$ 185,730

XML

Loans and Allowance (Troubled Debts Restructured) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($) loan	Dec. 31, 2015 USD ($) loan	Dec. 31, 2014 USD ($) loan
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	1	4	6
Pre-Modification Outstanding Recorded Balance	$ 406	$ 2,399	$ 1,229
Post-Modification Outstanding Recorded Balance	$ 406	$ 2,406	$ 1,248
Commercial Real Estate [Member] | Construction Loans [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	1	1
Pre-Modification Outstanding Recorded Balance	$ 83	$ 155
Post-Modification Outstanding Recorded Balance	83	155
Commercial Segment [Member] | Construction Loans [Member]
Financing Receivable, Modifications [Line Items]
Post-Modification Outstanding Recorded Balance	$ 83	$ 155
Commercial Segment [Member] | Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan		1	2
Pre-Modification Outstanding Recorded Balance		$ 88	$ 193
Post-Modification Outstanding Recorded Balance		$ 83	$ 223
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	14	8	12
Pre-Modification Outstanding Recorded Balance	$ 881	$ 287	$ 1,493
Post-Modification Outstanding Recorded Balance	$ 911	$ 287	$ 1,139
Consumer [Member] | Second Mortgage [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	1	3	5
Pre-Modification Outstanding Recorded Balance	$ 39	$ 51	$ 58
Post-Modification Outstanding Recorded Balance	$ 39	$ 51	$ 59
Consumer [Member] | Automobile Loan [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	1	2
Pre-Modification Outstanding Recorded Balance	$ 4	$ 25
Post-Modification Outstanding Recorded Balance	$ 4	$ 25
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
Consumer [Member] | Other [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	2
Pre-Modification Outstanding Recorded Balance	$ 7
Post-Modification Outstanding Recorded Balance	$ 7

XML

Loans and Allowance (Newly Restructured Loans by Type) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Only
Term	406	$ 2,406	$ 701
Combination			547
Total modification	406	2,406	1,248
Commercial Real Estate [Member] | Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total modification	83	155
Commercial Segment [Member] | Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Only
Term	83
Combination		155
Total modification	83	155
Commercial Segment [Member] | Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term		83	223
Total modification		83	223
Consumer [Member] | First Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Only			101
Term	47	11
Combination	864	276	1,038
Total modification	911	287	1,139
Consumer [Member] | Second Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Only
Term		51	28
Combination	39		31
Total modification	39	51	$ 59
Consumer [Member] | Automobile Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Only
Term		25
Combination	4
Total modification	4	$ 25
Consumer [Member] | Boat/RVs [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Only
Term	48
Combination	8
Total modification	56
Consumer [Member] | Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Only
Term	7
Total modification	$ 7

XML

Loans and Allowance (Troubled Debts Restructured Defaulted) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($) loan	Dec. 31, 2015 USD ($) loan	Dec. 31, 2014 USD ($) loan
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan		1
Post-Modification Outstanding Recorded Balance | $		$ 820
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	5		4
Post-Modification Outstanding Recorded Balance | $	$ 179		$ 663
Consumer [Member] | Second Mortgage [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan			1
Post-Modification Outstanding Recorded Balance | $			$ 23
Consumer [Member] | Boat/RVs [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	1
Post-Modification Outstanding Recorded Balance | $	$ 7

XML

Related Party Transactions (Aggregate Amount of Loans to Related Parties) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($)
Related Party Transactions [Abstract]
Beginning balance	$ 8,062
Change in composition	(14)
New loans, including renewals	5,358
Payments, etc., including renewals	(6,271)
Ending balance	$ 7,135

XML

Premises and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Premises and Equipment	$ 40,900	$ 51,921
Accumulated depreciation and amortization	(19,700)	(20,873)
Premises and Equipment, net	21,200	31,048
Land
Property, Plant and Equipment [Line Items]
Premises and Equipment	8,074	12,393
Buildings and land improvements
Property, Plant and Equipment [Line Items]
Premises and Equipment	19,264	26,651
Equipment
Property, Plant and Equipment [Line Items]
Premises and Equipment	$ 13,562	$ 12,877

XML

Core Deposit and Other Intangibles (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Core Deposit and Other Intangibles [Abstract]
Amortization expense	$ 420,000	$ 517,000	$ 647,000

XML

Core Deposit and Other Intangible (Carrying Basis of Recognized Intangible Assets) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Disclosure Recognized Intangible [Abstract]
Core deposits	$ 200	$ 444
Other intangibles	191	367
Core deposit and other intangibles	$ 391	$ 811

XML

Core Deposit and Other Intangibles (Estimated Amortization Expense) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Core Deposit and Other Intangibles [Abstract]
2017	$ 264
2018	114
2019	13
Core deposit and other intangibles	$ 391	$ 811

XML

Goodwill (Schedule of Goodwill) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Goodwill [Abstract]
Goodwill, Beginning Balance	$ 1,800	$ 1,800
Goodwill acquired during the year
Goodwill, Ending Balance	$ 1,800	$ 1,800

XML

Deposits (Schedule of Deposits) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Deposits [Abstract]
Noninterest-bearing demand	$ 178,046	$ 179,542
Interest-bearing demand	292,977	267,089
Savings	136,314	131,578
Money market savings	173,305	162,551
Certificates and other time deposits of $100,000 or more	181,067	147,268
Other certificates	191,673	203,354
Total deposits	$ 1,153,382	$ 1,091,382

XML

Deposits (Certificates, Including Other Time Deposits of Hundred Thousand or More, Maturing by Period) (Details) $ in Thousands	Dec. 31, 2016 USD ($)
Deposits [Abstract]
2017	$ 190,130
2018	48,689
2019	37,076
2020	58,507
2021	32,244
Thereafter	6,094
Time Deposits, Total	$ 372,740

XML

Federal Home Loan Bank Advances (Narrative) (Details)	Dec. 31, 2016 USD ($)
Mortgage loans pledged as collateral for advances, value	$ 360,870,000
Federal home loan bank advances	$ 40,000,000
Minimum [Member]
Interest rates on advances	0.60%
Maximum [Member]
Interest rates on advances	6.73%
Federal Home Loan Bank, Advances, Putable Option [Member]
Federal home loan bank advances	$ 15,000,000

XML

Federal Home Loan Bank Advances (Advances Maturing by Period) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Federal Home Loan Bank Advances [Abstract]
2017	$ 70,028
2018	39,030
2019	40,533
2020	36,500
2021	26,500
Thereafter	28,000
Federal Home Loan Bank advances	$ 240,591	$ 225,617

XML

Other Borrowings (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2008	Dec. 31, 2015
Debt Instrument [Line Items]
Proceeds from long term borrowings	$ 7,589,000
Debt instrument maturity date		Sep. 15, 2035
Description of variable rate basis		three-month LIBOR
Assumed debentures upon acquisition		$ 5,000,000
Debt Instrument Interest Rate Description	The rate resets quarterly at the prevailing three-month LIBOR rate plus 170 basis points
Other borrowings	$ 4,189,000		$ 9,458,000
First Tennessee Bank Loan [Member]
Debt Instrument [Line Items]
Interest rate	2.80%
MutualFirst Financial, Inc. [Member]
Debt Instrument [Line Items]
Other borrowings	$ 4,189,000		$ 9,458,000
After Five Years | 3-Month LIBOR [Member]
Debt Instrument [Line Items]
Basis spread on variable rate		1.70%

XML

Other Borrowings (Components of Other Borrowings) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Other Borrowings [Abstract]
Note payable		$ 5,312
Subordinated debenture, net of discount	$ 4,189	4,146
Other borrowings	$ 4,189	$ 9,458

XML

Derivative Financial Instruments (Narrative) (Details) - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Derivative Financial Instruments [Abstract]
Notional amount of customer-facing swaps	$ 14,588,000	$ 4,649,000

XML

Derivative Financial Instruments (Amounts of Derivative Financial Instruments) (Details) - Not Designated as Hedging Instrument [Member] - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Other Assets [Member]
Derivatives, Fair Value [Line Items]
Interest rate contracts, fair value	$ 553	$ 336
Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Interest rate contracts, fair value	$ 553	$ 336

XML

Loan Servicing (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Loan Servicing [Abstract]
Servicing fees collected	$ 801,000	$ 814,000	$ 832,000

XML

Loan Servicing (Unpaid Principal Balances of Loans Serviced) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Servicing Assets at Fair Value [Line Items]
Unpaid principle balance of loans serviced	$ 320,790	$ 321,588
Freddie Mac
Servicing Assets at Fair Value [Line Items]
Unpaid principle balance of loans serviced	301,263	295,613
Fannie Mae
Servicing Assets at Fair Value [Line Items]
Unpaid principle balance of loans serviced	7,355	11,535
Federal Home Loan Bank
Servicing Assets at Fair Value [Line Items]
Unpaid principle balance of loans serviced	10,621	12,677
Other investors
Servicing Assets at Fair Value [Line Items]
Unpaid principle balance of loans serviced	$ 1,551	$ 1,763

XML

Loan Servicing (Mortgage-Servicing Rights) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Loan Servicing [Abstract]
Balances, January 1	$ 1,335	$ 1,417	$ 1,858
Servicing rights capitalized	482	458	278
Amortization of servicing rights	(466)	(540)	(719)
Ending balance		1,335	1,417
Servicing asset, net	$ 1,351	$ 1,335	$ 1,417

XML

Loan Servicing (Fair Value of Servicing Rights) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Loan Servicing [Abstract]
Mortgage-servicing rights, beginning balance	$ 2,179	$ 2,048	$ 2,106
Mortgage-servicing rights, ending balance	$ 2,110	$ 2,179	$ 2,048

XML

Income Tax - (Narrative) (Details)	12 Months Ended
	Dec. 31, 2016 USD ($)
Income Tax [Abstract]
Unused business income tax credits	$ 2,749,000
AMT credit carryover	$ 1,351,000
ATM credit carryforward, expiration period	unlimited
Unused business income tax expiration year	Dec. 31, 2028
State net operating loss	$ 23,011,000
State net operating loss expiration year	Dec. 31, 2023
Recognized deferred income tax liability	$ 14,743,000
Unrecorded deferred income tax liability	$ 5,013,000

XML

Income Tax (Provision For Income Taxes) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Currently payable
Federal	$ 2,849	$ 2,652	$ 2,779
Deferred
Federal	1,317	1,706	867
State	220	220	220
Income tax expense (benefit), Total	$ 4,386	$ 4,578	$ 3,866

XML

Income Tax (Reconciliation of Income Tax Expense at Federal Statutory Rate to Actual Tax Expense) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34%	$ 5,993	$ 5,721	$ 4,897
Other than temporary impairment			(615)
State taxes	145	145	145
Non tax captive insurance income	(319)
Low income housing credits	(96)	(96)	(107)
Tax-exempt income	(1,404)	(1,111)	(818)
Other	67	(81)	364
Income tax expense (benefit), Total	$ 4,386	$ 4,578	$ 3,866
Effective tax rate	24.88%	27.21%	25.93%
Federal statutory income tax rate	34.00%	34.00%	34.00%

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Income Tax (Components of Deferred Assets) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Assets
Allowance for loan losses	$ 4,999	$ 5,091
Deferred compensation	3,174	3,193
Business tax and AMT credit carryovers	4,100	4,776
Capital loss carryover		102
Net operating loss carryover	1,496	1,845
Goodwill impairment	1,780	2,188
Purchase accounting adjustments	1,010	1,060
Other-than-temporary-impairment, available for sale securities	37	37
Unrealized loss on securities available for sale	776
Other	857	1,275
Total assets	18,229	19,567
Liabilities
Unrealized gain on securities available for sale		(720)
Depreciation and amortization	(504)	(465)
FHLB stock	(385)	(358)
State income tax	(551)	(585)
Loan fees	(355)	(298)
Investments in limited partnerships	(2,072)	(2,255)
Mortgage servicing rights	(564)	(572)
Other	(972)	(1,010)
Total liabilities	(5,403)	(6,263)
Valuation Allowance
Beginning balance	(1,220)	(1,220)
Decrease during period	431	0
Ending balance	(789)	(1,220)
Net deferred tax asset	$ 12,037	$ 12,084

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Accumulated Other Comprehensive Income (Loss) (Components of Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Accumulated Other Comprehensive Income (Loss) [Abstract]
Net unrealized gain on securities available-for-sale	$ (1,009)	$ 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	(866)	(905)
Net unrealized loss on derivative used for cash flow hedges		(1)
Net unrealized loss relating to defined benefit plan liability	30	(32)
Accumulated other comprehensive income before tax	(1,845)	2,373
Tax expense	(591)	883
Net of tax amount	$ (1,254)	$ 1,490

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Accumulated Other Comprehensive Income (Loss) (Reclassification out of Accumulated Other Comprehensive Income (Loss) Alternate) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Related income tax expense	$ (4,386)	$ (4,578)	$ (3,866)
Net Income Available to Common Shareholders	13,241	12,262
Reclassification out of AOCI [Member] | Accumulated Net Unrealized Investment Gain (Loss) [Member]
Total Non-interest income	1,023	436	313
Related income tax expense	(348)	(148)	(106)
Net Income Available to Common Shareholders	$ 675	$ 288	$ 207

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Commitments and Contingent Liabilities (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Contingencies And Commitments [Line Items]
Mortgage loans in the process of origination	$ 4,396,000	$ 6,457,000
Mortagage loans held for sale	4,063,000	5,991,000
Loans Receivable Held-for-sale, Net, Not Part of Disposal Group, Mortgage	$ 4,063,000	$ 5,991,000
Minimum [Member]
Contingencies And Commitments [Line Items]
Mortgage loans in the process of origination, funding period	60 days
Maximum [Member]
Contingencies And Commitments [Line Items]
Mortgage loans in the process of origination, funding period	90 days

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Commitments and Contingent Liabilities (Financial Instruments Whose Contract Amount Represents Credit Risk) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Commitments and Contingent Liabilities [Abstract]
Loan commitments	$ 224,900	$ 228,548
Standby letters of credit	$ 2,541	$ 2,464

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Regulatory Capital (Actual Capital Amounts and Ratios) (Details) - USD ($)		Dec. 31, 2016		Dec. 31, 2015
MutualFirst Consolidated [Member]
Compliance with Regulatory Capital Requirements for Mortgage Companies [Line Items]
Leverage Capital Level, Actual Capital Levels Amount		$ 138,971,000	[1]	$ 132,727,000
Total Risk-Based Capital Level, Actual Capital Levels Amount		151,353,000	[2]	145,368,000
Common Equity Tier 1 Capital Level Amount		136,606,000	[3]	131,520,000	[4]
Tier 1 Risk-Based Capital Level, Actual Capital Levels Amount		$ 138,971,000	[5]	$ 132,727,000
Leverage Capital Level, Actual Capital Levels Ratio		9.00%	[1]	9.10%
Total Risk-Based Capital Level, Actual Capital Levels Ratio		13.20%	[2]	13.80%
Common Equity Tier 1 Capital Level, Actual Capital Levels Ratio		11.90%	[3]	12.50%	[4]
Tier 1 Risk-Based Capital Level, Actual Capital Levels Ratio		12.10%	[5]	12.60%
Leverage Capital Level, Minimum Regulatory Capital Ratios Amount		$ 61,914,000	[1]	$ 58,608,000
Total Risk-Based Capital Level, Minimum Regulatory Capital Ratios Amount		91,963,000	[2]	84,144,000
Common Equity Tier 1 Risk-Based Capital Level, Minimum Regulatory Capital Ratios Amount		51,729,000	[3]	47,331,000	[4]
Tier 1 Risk-Based Capital Level, Minimum Regulatory Capital Ratios Amount		$ 68,973,000	[5]	$ 63,108,000
Leverage Capital Level, Minimum Regulatory Capital Ratios		4.00%	[1]	4.00%
Total Risk-Based Capital Level, Minimum Regulatory Capital Ratios		8.00%	[2]	8.00%
Common Equity Tier 1 Risk-Based Capital Level, Minimum Regulatory Capital Ratios	[3]	4.50%
Tier 1 Risk-Based Capital Level, Minimum Regulatory Capital Ratios		6.00%	[5]	6.00%
Common Equity Tier 1 Risk-Based Capital Level, Minimum Required To Be Considered Well-Capitalized Amount	[4]			$ 4.5
Risk-Weighted Regulatory Capital Assets		$ 1,100,000,000		1,100,000,000
MutualBank [Member]
Compliance with Regulatory Capital Requirements for Mortgage Companies [Line Items]
Leverage Capital Level, Actual Capital Levels Amount		136,301,000	[1]	134,754,000
Total Risk-Based Capital Level, Actual Capital Levels Amount		148,683,000	[2]	147,395,000
Common Equity Tier 1 Capital Level Amount		136,301,000	[3]	134,754,000	[4]
Tier 1 Risk-Based Capital Level, Actual Capital Levels Amount		$ 136,301,000	[5]	$ 134,754,000
Leverage Capital Level, Actual Capital Levels Ratio		8.80%	[1]	9.20%
Total Risk-Based Capital Level, Actual Capital Levels Ratio		12.90%	[2]	14.00%
Common Equity Tier 1 Capital Level, Actual Capital Levels Ratio		11.90%	[3]	12.80%	[4]
Tier 1 Risk-Based Capital Level, Actual Capital Levels Ratio		11.90%	[5]	12.80%
Leverage Capital Level, Minimum Regulatory Capital Ratios Amount		$ 61,832,000	[1]	$ 58,509,000
Total Risk-Based Capital Level, Minimum Regulatory Capital Ratios Amount		91,904,000	[2]	84,106,000
Common Equity Tier 1 Risk-Based Capital Level, Minimum Regulatory Capital Ratios Amount		51,696,000	[3]	47,309,000	[4]
Tier 1 Risk-Based Capital Level, Minimum Regulatory Capital Ratios Amount		$ 68,928,000	[5]	$ 63,079,000
Leverage Capital Level, Minimum Regulatory Capital Ratios		4.00%	[1]	4.00%
Total Risk-Based Capital Level, Minimum Regulatory Capital Ratios		8.00%	[2]	8.00%
Common Equity Tier 1 Risk-Based Capital Level, Minimum Regulatory Capital Ratios		4.50%	[3]	4.50%	[4]
Tier 1 Risk-Based Capital Level, Minimum Regulatory Capital Ratios		6.00%	[5]	6.00%
Leverage Capital Level, Minimum Required To be Considered Well-Capitalized Amount		$ 77,290,000	[1]	$ 73,136,000
Total Risk-Based Capital Level, Minimum Required To be Considered Well-Capitalized Amount		114,880,000	[2]	105,132,000
Common Equity Tier 1 Risk-Based Capital Level, Minimum Required To Be Considered Well-Capitalized Amount		74,672,000	[3]	68,336,000	[4]
Tier 1 Risk-Based Capital Level, Minimum Required To be Considered Well-Capitalized Amount		$ 91,904,000	[5]	$ 84,106,000
Leverage Capital Level, Minimum Required To be Considered Well-Capitalized Ratio		5.00%	[1]	5.00%
Total Risk-Based Capital Level, Minimum Required To be Considered Well-Capitalized Ratio		10.00%	[2]	10.00%
Common Equity Tier 1 Risk-Based Capital Level, Minimum Required To Be Considered Well-Capitalized Ratio		6.50%	[3]	6.50%	[4]
Tier 1 Risk-Based Capital Level, Minimum Required To be Considered Well-Capitalized Ratio		8.00%	[5]	8.00%
Average Total Regulatory Capital Assets				$ 1,500,000,000
Risk-Weighted Regulatory Capital Assets				$ 1,100,000,000

[1] Tier 1 Capital to Average Total Assets of $1.5 billion for the Bank and Company at December 31, 2016.

[2] Total Capital to Risk-Weighted Assets.

[3] Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at December 31, 2016.

[4] Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at December 31, 2015.

[5] Tier 1 Capital to Risk-Weighted Assets.

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Employee Benefits (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Number of unearned ESOP shares	0	0
Retirement savings 401(k) plan
Defined Benefit Plan Disclosure [Line Items]
Defined contribution plan, contribution	$ 938,000	$ 810,000
Supplemental retirement plan and deferred compensation arrangements
Defined Benefit Plan Disclosure [Line Items]
Deferred compensation arrangement with individual, compensation expense	$ 676,000	$ 669,000	$ 730,000
Maximum [Member] | Retirement savings 401(k) plan
Defined Benefit Plan Disclosure [Line Items]
Percentage employer matching contribution	5.00%
Up to 4% of participant contributions | Retirement savings 401(k) plan
Defined Benefit Plan Disclosure [Line Items]
Percentage of participant contributions	4.00%
Percentage employer matching contribution	100.00%
5%-6% of participant contributions | Retirement savings 401(k) plan
Defined Benefit Plan Disclosure [Line Items]
Percentage employer matching contribution	50.00%
5%-6% of participant contributions | Minimum [Member] | Retirement savings 401(k) plan
Defined Benefit Plan Disclosure [Line Items]
Percentage of participant contributions	5.00%
5%-6% of participant contributions | Maximum [Member] | Retirement savings 401(k) plan
Defined Benefit Plan Disclosure [Line Items]
Percentage of participant contributions	6.00%

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Employee Benefits (Information on Employee Stock Ownership Plan Shares) (Details) - shares	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Employee Benefits [Abstract]
Allocated shares	403,649	417,848	417,848
Suspense shares	0	0

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Stock Option Plans (Narrative) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Options exercised	77,600	186,059	118,823
Proceeds from stock options exercised	$ 976,000	$ 2,000,000	$ 1,300,000
Options exercised during the period, intrinsic value	$ 911,000	$ 2,200,000	$ 1,000,000
Options granted	0	0	0
2000 Stock Option Plan [Member]
Shares authorized to grant options	141,462
Options granted	0	0
Equity Compensation Plan [Member]
Shares authorized to grant options	352,741
Shares remaining to be granted under plan	58,003

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Stock Option Plans (Summary of Status and Changes in Stock Option Plan) (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Shares
Options outstanding, Beginning balance	382,161
Options granted	0	0	0
Options exercised	77,600	186,059	118,823
Options outstanding, Ending balance		382,161
Options exercisable at year end	304,561
Weighted Average Exercise Price
Options Outstanding, Weighted Average Exercise Price, Beginning balance	$ 10.45
Options Exercised, Weighted Average Exercise Price	12.58
Options Outstanding, Weighted Average Exercise Price, Ending balance	$ 9.90	$ 10.45
Weighted- Average Remaining Contractual Life (in years)
Options Outstanding, Weighted-Average Remaining Contractual Life	7 years 4 months 24 days
Aggregate Intrinsic Value
Options Outstanding, Aggregate Intrinsic Value	$ 7,064,000

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Earnings Per Share (Narrative) (Details) - shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from earnings per share computation	37,161	44,161

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Earnings Per Share (Schedule of Earnings per Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended												12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Basic Earnings Per Share
Net income	$ 3,237	$ 3,482	$ 4,157	$ 2,365	$ 3,338	$ 3,225	$ 3,218	$ 2,481	$ 3,661	$ 2,751	$ 2,614	$ 2,020	$ 13,241	$ 12,262	$ 11,046
Income available to common stockholders													13,241	12,262
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions													$ 13,241	$ 12,262	$ 11,046
Weighted-Average Shares number of common shares, basic													7,391,681	7,374,589	7,160,700
Weighted-Average Shares, effect of dilutive securities stock option													147,157	173,296	231,131
Weighted-Average Shares income available to common stockholders and assumed conversions, diluted													7,538,838	7,547,885	7,391,831
Earnings per share, basic	$ 0.44	$ 0.48	$ 0.56	$ 0.32	$ 0.45	$ 0.44	$ 0.44	$ 0.34	$ 0.51	$ 0.38	$ 0.37	$ 0.28	$ 1.79	$ 1.66	$ 1.54
Earnings per share, diluted	$ 0.43	$ 0.47	$ 0.55	$ 0.31	$ 0.44	$ 0.43	$ 0.43	$ 0.33	$ 0.49	$ 0.37	$ 0.36	$ 0.27	$ 1.76	$ 1.62	$ 1.49

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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	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 249,913	$ 261,138
Mortgage-backed securities, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	92,517	107,838
Collateralized mortgage obligations, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	68,047	84,652
Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	77,682	57,188
Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	11,667	11,460
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value
Fair Value, Inputs, Level 1 [Member] | 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 [Member] | 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 [Member] | Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value
Fair Value, Inputs, Level 1 [Member] | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	247,325	258,604
Fair Value, Inputs, Level 2 [Member] | Mortgage-backed securities, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	92,517	107,838
Fair Value, Inputs, Level 2 [Member] | Collateralized mortgage obligations, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	68,047	84,652
Fair Value, Inputs, Level 2 [Member] | Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	77,682	57,188
Fair Value, Inputs, Level 2 [Member] | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	9,079	8,926
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	2,588	2,534
Fair Value, Inputs, Level 3 [Member] | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 2,588	$ 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	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Fair Values of Financial Instruments [Abstract]
Beginning balance	$ 2,534	$ 2,522	$ 3,336
Total realized and unrealized gains (losses)
Included in net income			(68)
Included in other comprehensive income (loss)	54	12	2,098
Sales			(2,826)
Settlements			(18)
Ending balance	2,588	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	$ 0	$ 0	$ 0

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Fair Values of Financial Instruments (Fair Value Measurement of Assets Measured at Fair Value on Nonrecurring Basis) (Details) - Impaired loans [Member] $ in Thousands	Dec. 31, 2015 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on nonrecurring basis	$ 676
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on nonrecurring basis	$ 676

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Fair Values of Financial Instruments (Quantitative Information about Unobservable Inputs used in Recurring and Nonrecurring Level Three Fair Value Measurements) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Pooled Trust Preferred Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 2,588	$ 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 [Member] | Minimum [Member]
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	32.50%	33.80%
Pooled Trust Preferred Securities [Member] | Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	8.00%	8.00%
Probability of default	2.20%	1.80%
Projected cures given deferral	15.00%	15.00%
Loss severity	38.70%	40.20%
Impaired loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value		$ 676
Valuation Technique		Third party valuations
Impaired loans [Member] | Minimum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount to reflect realizable value		20.00%
Impaired loans [Member] | Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount to reflect realizable value		50.00%

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Fair Values of Financial Instruments (Estimated Fair Values of Financial Instruments) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Carrying Amount [Member]
Assets
Cash and cash equivalents	$ 26,860	$ 20,915
Interest-bearing deposits	993
Loans held for sale	4,063	5,991
Loans	1,157,120	1,068,204
FHLB stock	10,925	10,482
Interest receivable	4,629	4,201
Liabilities
Deposits	1,153,382	1,091,382
FHLB advances	240,591	225,617
Other borrowings	4,189	9,458
Interest payable	350	199
Portion at Fair Value Measurement [Member]
Assets
Cash and cash equivalents	25,795	20,915
Interest-bearing deposits	993
Loans held for sale	4,094	6,058
Loans	1,139,450	1,056,357
FHLB stock	10,925	10,482
Interest receivable	4,629	4,201
Liabilities
Deposits	1,152,030	1,090,975
FHLB advances	239,866	224,621
Other borrowings	4,189	9,459
Interest payable	350	199
Fair Value, Inputs, Level 1 [Member] | Portion at Fair Value Measurement [Member]
Assets
Cash and cash equivalents	25,795	20,915
Interest-bearing deposits	993
Liabilities
Deposits	779,577	740,759
Fair Value, Inputs, Level 2 [Member] | Portion at Fair Value Measurement [Member]
Assets
Loans held for sale	4,094	6,058
FHLB stock	10,925	10,482
Interest receivable	4,629	4,201
Liabilities
FHLB advances	239,866	224,621
Other borrowings	4,189	9,459
Interest payable	350	199
Fair Value, Inputs, Level 3 [Member] | Portion at Fair Value Measurement [Member]
Assets
Loans	1,139,450	1,056,357
Liabilities
Deposits	$ 372,453	$ 350,216

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Condensed Financial Information (Parent Company Only) (Condensed Balance Sheets) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Assets
Cash on deposit with Bank	$ 18,357	$ 12,305
Cash on deposit with others	8,503	8,610
Deferred tax	12,037	12,084
Other Assets	15,429	12,938
Total assets	1,553,133	1,478,265
Liabilities
Other borrowings	4,189	9,458
Other liabilities	14,933	14,783
Total liabilities	1,413,095	1,341,240
Stockholders' Equity	140,038	137,025	$ 126,752	$ 110,629
Total liabilities and stockholders' equity	1,553,133	1,478,265
MutualFirst Financial, Inc. [Member]
Assets
Cash on deposit with Bank	1,098	2,732
Cash on deposit with others	24	24
Total cash	1,122	2,756
Investment in common stock of subsidiaries	142,812	143,459
Deferred tax	146	214
Other Assets	265	262
Total assets	144,345	146,691
Liabilities
Other borrowings	4,189	9,458
Other liabilities	118	208
Total liabilities	4,307	9,666
Stockholders' Equity	140,038	137,025
Total liabilities and stockholders' equity	$ 144,345	$ 146,691

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Condensed Financial Information (Parent Company Only) (Condensed Statements of Income) (Details) - USD ($) $ in Thousands	3 Months Ended												12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income
Interest income from Bank													$ 76	$ 14	$ 17
Total interest and dividend income	$ 13,943	$ 13,567	$ 13,258	$ 13,034	$ 13,313	$ 13,049	$ 12,731	$ 12,683	$ 12,893	$ 12,803	$ 12,744	$ 12,738	53,802	51,776	51,178
Expenses	2,374	2,330	2,271	2,272	2,214	2,233	2,191	2,165	2,255	2,163	2,186	2,319	9,247	8,803	8,923
Income tax benefit													4,386	4,578	3,866
Net Income	$ 3,237	$ 3,482	$ 4,157	$ 2,365	$ 3,338	$ 3,225	$ 3,218	$ 2,481	$ 3,661	$ 2,751	$ 2,614	$ 2,020	13,241	12,262	11,046
Net Income Available to Common Shareholders													13,241	12,262
MutualFirst Financial, Inc. [Member]
Income
Interest income from Bank														1	1
Dividends from subsidiaries													12,000	3,600	3,500
Total interest and dividend income													12,000	3,601	3,501
Expenses													976	1,182	994
Income before income tax and equity in undistributed income of subsidiaries													11,024	2,419	2,507
Income tax benefit													(399)	(591)	(337)
Income before equity in undistributed income (distributions in excess of income) of subsidiaries													11,423	3,010	2,844
Equity in undistributed income (distributions in excess of income) of subsidiaries													1,818	9,252	8,202
Net Income													$ 13,241	$ 12,262	$ 11,046

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Condensed Financial Information (Parent Company Only) (Condensed Statements of Comprehensive Income) (Details) - USD ($) $ in Thousands	3 Months Ended												12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Condensed Financial Statements, Captions [Line Items]
Net income	$ 3,237	$ 3,482	$ 4,157	$ 2,365	$ 3,338	$ 3,225	$ 3,218	$ 2,481	$ 3,661	$ 2,751	$ 2,614	$ 2,020	$ 13,241	$ 12,262	$ 11,046
Other Comprehensive Income (Loss)
Net unrealized holding gain (loss) on securities available for sale													(3,297)	(1,186)	8,921
Net unrealized gain on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income													39	12	381
Less: Reclassification adjustment for realized gains included in net included in net income													(1,023)	(436)	(313)
Net unrealized gain on derivative used for cash flow hedges													1	108	150
Net unrealized gain (loss) related to defined benefit plan													62	77	(209)
Other Comprehensive Income (Loss), before Tax													(4,218)	(1,425)	8,930
Income tax (expense) benefit related to other comprehensive income													1,474	537	(3,137)
Other comprehensive income (loss)													(2,744)	(888)	5,793
Comprehensive income													10,497	11,374	16,839
MutualFirst Financial, Inc. [Member]
Condensed Financial Statements, Captions [Line Items]
Net income													13,241	12,262	11,046
Other Comprehensive Income (Loss)
Net unrealized holding gain (loss) on securities available for sale													(3,297)	(1,186)	8,921
Net unrealized gain on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income													39	12	381
Less: Reclassification adjustment for realized gains included in net included in net income													(1,023)	(436)	(313)
Net unrealized gain on derivative used for cash flow hedges													1	108	150
Net unrealized gain (loss) related to defined benefit plan													62	77	(209)
Other Comprehensive Income (Loss), before Tax													(4,218)	(1,425)	8,930
Income tax (expense) benefit related to other comprehensive income													1,474	537	(3,137)
Other comprehensive income (loss)													(2,744)	(888)	5,793
Comprehensive income													$ 10,497	$ 11,374	$ 16,839

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Condensed Financial Information (Parent Company Only) (Condensed Statements of Cash Flows) (Details) - USD ($) $ in Thousands	3 Months Ended												12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Operating Activities
Net income	$ 3,237	$ 3,482	$ 4,157	$ 2,365	$ 3,338	$ 3,225	$ 3,218	$ 2,481	$ 3,661	$ 2,751	$ 2,614	$ 2,020	$ 13,241	$ 12,262	$ 11,046
Item not requiring cash
Deferred income tax													1,537	1,926	1,087
Other													143	143	474
Net cash provided by operating activities													18,551	15,933	12,010
Investing Activities
Net cash used in investing activities													(76,606)	(67,532)	(21,760)
Financing Activities
Repayments of other borrowings													(5,312)	(759)	(759)
Cash dividends													(4,284)	(3,550)	(2,297)
Proceeds from stock options exercised													976	2,011	1,347
Net cash provided by financing activities													64,000	42,939	14,040
Net Change in Cash and Cash Equivalents													5,945	(8,660)	4,290
Cash and Cash Equivalents, Beginning of Period				20,915				29,575				25,285	20,915	29,575	25,285
Cash and Cash Equivalents, End of Period	26,860				20,915				29,575				26,860	20,915	29,575
MutualFirst Financial, Inc. [Member]
Operating Activities
Net income													13,241	12,262	11,046
Item not requiring cash
Deferred income tax													200	(102)	159
(Equity in undistributed income) distributions in excess of income of subsidiary													(1,818)	(9,252)	(8,202)
Other													(183)	13	19
Net cash provided by operating activities													11,440	2,921	3,022
Investing Activities
Investment in subsidiary													(100)	(250)
Net cash used in investing activities													(100)	(250)
Financing Activities
Repayments of other borrowings													(5,312)	(759)	(759)
Stock repurchased													(4,354)
Cash dividends													(4,284)	(3,550)	(2,297)
Proceeds from stock options exercised													976	2,011	1,347
Net cash provided by financing activities													(12,974)	(2,298)	(1,709)
Net Change in Cash and Cash Equivalents													(1,634)	373	1,313
Cash and Cash Equivalents, Beginning of Period				$ 2,756				$ 2,383				$ 1,070	2,756	2,383	1,070
Cash and Cash Equivalents, End of Period	$ 1,122				$ 2,756				$ 2,383				$ 1,122	$ 2,756	$ 2,383

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Quarterly Results of Operations (Schedule of Quarterly Financial Information) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended												12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Quarterly Results of Operations [Abstract]
Interest Income	$ 13,943	$ 13,567	$ 13,258	$ 13,034	$ 13,313	$ 13,049	$ 12,731	$ 12,683	$ 12,893	$ 12,803	$ 12,744	$ 12,738	$ 53,802	$ 51,776	$ 51,178
Interest Expense	2,374	2,330	2,271	2,272	2,214	2,233	2,191	2,165	2,255	2,163	2,186	2,319	9,247	8,803	8,923
Net Interest Income	11,569	11,237	10,987	10,762	11,099	10,816	10,540	10,518	10,638	10,640	10,558	10,419	44,555	42,973	42,255
Provision for loan losses	250	250	150	200	125						500	350	850	125	850
Net Income Loss	$ 3,237	$ 3,482	$ 4,157	$ 2,365	$ 3,338	$ 3,225	$ 3,218	$ 2,481	$ 3,661	$ 2,751	$ 2,614	$ 2,020	13,241	12,262	$ 11,046
Net Income Available to Common Shareholders													$ 13,241	$ 12,262
Earnings per share, basic	$ 0.44	$ 0.48	$ 0.56	$ 0.32	$ 0.45	$ 0.44	$ 0.44	$ 0.34	$ 0.51	$ 0.38	$ 0.37	$ 0.28	$ 1.79	$ 1.66	$ 1.54
Earnings per share, diluted	$ 0.43	$ 0.47	$ 0.55	$ 0.31	$ 0.44	$ 0.43	$ 0.43	$ 0.33	$ 0.49	$ 0.37	$ 0.36	$ 0.27	$ 1.76	$ 1.62	$ 1.49