10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2018
	OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from  ___________________  to  ___________________

Commission File Number 000-27905

MutualFirst Financial, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

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

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

None

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date. As of May 9, 2018, there were 8,574,924 shares of the registrant’s common stock outstanding. 

MutualFirst Financial, Inc.

Form 10-Q Quarterly Report for the Period Ended March 31, 2018

Table of Contents

		Page
		Number
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets	1
	Consolidated Condensed Statements of Income	2
	Consolidated Condensed Statements of Comprehensive Income	3
	Consolidated Condensed Statement of Stockholders’ Equity	4
	Consolidated Condensed Statements of Cash Flows	5
	Notes to Unaudited Consolidated Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	43
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosure	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
Signature   Page		47
Exhibits		48

MutualFirst Financial, Inc.

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

	March 31,			December 31,
	2018			2017
	(Unaudited)
Assets
Cash and due from banks	$	11,681		$	8,763
Interest-bearing demand deposits		29,388			18,578
Cash and cash equivalents		41,069			27,341
Interest-bearing time deposits		4,627			1,853
Investment securities available for sale (carried at fair value)		354,145			277,378
Loans held for sale		3,686			4,577
Loans, net of allowance for loan losses of $12,537 and $12,387,
at March 31, 2018 and December 31, 2017, respectively		1,436,889			1,167,758
Premises and equipment, net		26,208			21,539
Federal Home Loan Bank stock		12,820			11,183
Deferred tax asset, net		10,665			7,530
Cash value of life insurance		59,209			52,707
Goodwill		23,869			1,800
Core deposit intangibles		4,509			127
Other real estate owned and repossessed assets		1,753			733
Other assets		16,656			14,406
Total assets	$	1,996,105		$	1,588,932
Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing	$	288,996		$	194,134
Interest-bearing		1,251,456			1,007,900
Total deposits		1,540,452			1,202,034
Federal Home Loan Bank advances		230,546			217,163
Other borrowings		18,110			4,232
Other liabilities		15,935			15,221
Total liabilities		1,805,043			1,438,650
Commitments and Contingencies
Stockholders' Equity
Common stock, $.01 par value
Authorized - 20,000,000 shares
Issued and outstanding - 8,574,924 and 7,389,394 shares
at March 31, 2018 and December 31, 2017, respectively		86			74
Additional paid-in capital		117,630			75,319
Retained earnings		76,971			74,508
Accumulated other comprehensive income (loss)		(3,625	)		381
Total stockholders' equity		191,062			150,282
Total liabilities and stockholders' equity	$	1,996,105		$	1,588,932

See notes to consolidated condensed financial statements

1

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Income
(Unaudited)

(In Thousands, Except Share and Per Share Data)

	Three Months Ended March 31,
	2018			2017
Interest and Dividend Income
Loans receivable	$	14,325		$	12,249
Investment securities		2,166			1,720
Federal Home Loan Bank stock		190			115
Deposits with financial institutions		67			25
Total interest and dividend income		16,748			14,109
Interest Expense
Deposits		2,107			1,465
Federal Home Loan Bank advances		962			886
Other		95			45
Total interest expense		3,164			2,396
Net Interest Income		13,584			11,713
Provision for loan losses		450			200
Net Interest Income After Provision for Loan Losses		13,134			11,513
Non-interest Income
Service fee income		1,564			1,400
Net realized gain on sales of available for sale securities		154			129
Commissions		1,262			1,196
Net gains on sales of loans		635			770
Net servicing fees		150			101
Increase in cash value of life insurance		289			272
Gain (loss) on sale of other real estate and repossessed assets		(68	)		54
Other income		449			202
Total non-interest income		4,435			4,124
Non-interest Expenses
Salaries and employee benefits		7,289			6,726
Net occupancy expenses		897			809
Equipment expenses		556			427
Data processing fees		593			554
ATM and debit card expenses		471			418
Deposit insurance		257			213
Professional fees		782			396
Advertising and promotion		360			312
Software subscriptions and maintenance		594			569
Other real estate and repossessed assets		45			47
Other expenses		1,133			935
Total non-interest expenses		12,977			11,406
Income Before Income Tax		4,592			4,231
Income tax expense		585			1,025
Net Income	$	4,007		$	3,206
Earnings Per Common Share
Basic	$	0.51		$	0.44
Diluted	$	0.50		$	0.43
Dividends Per Common Share	$	0.18		$	0.16

See notes to consolidated condensed financial statements

2

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Comprehensive Income
(Unaudited)

(In Thousands)

	Three Months Ended March 31,
	2018			2017
Net Income	$	4,007		$	3,206
Other Comprehensive Income
Net unrealized holding gain (loss) on securities available for sale		(4,931	)		715
Reclassification adjustment for realized gains included in net income		(154	)		(129	)
		(5,085	)		586
Income tax (benefit) expense related to other comprehensive income		1,079			(195	)
Other comprehensive income (loss), net of tax		(4,006	)		391
Comprehensive Income	$	1		$	3,597

See notes to consolidated condensed financial statements

3

MutualFirst Financial, Inc.

Consolidated Condensed Statement of Stockholders’ Equity
For the Period Ended March 31, 2018

(Unaudited)

(In Thousands, Except Share and Per Share Data)

	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balances December 31, 2017	$	74	$	75,319	$	74,508		$	381		$	150,282
Net income						4,007						4,007
Other comprehensive loss, net of taxes									(4,006	)		(4,006	)
Cash dividends, common stock ($0.18 per share)						(1,544	)					(1,544	)
Issuance of common stock related to acquisition		12		42,311								42,323
Balances March 31, 2018	$	86	$	117,630	$	76,971		$	(3,625	)	$	191,062

Note 1: 

See notes to consolidated condensed financial statements

4

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Cash Flows
(Unaudited)

(In Thousands, Except Share and Per Share Data)

	Three Months Ended March 31,
	2018			2017
Operating Activities
Net income	$	4,007		$	3,206
Items not requiring cash
Provision for loan losses		450			200
Depreciation and amortization		1,269			1,125
Increase in cash value of life insurance		(289	)		(272	)
Loans originated for sale		(19,259	)		(22,548	)
Proceeds from sales of loans held for sale		20,729			22,243
Net gain on sale of loans		(635	)		(770	)
Net gain on sale of securities, available for sale		(154	)		(129	)
Gain on bank owned life insurance		(326	)		-
(Gain) loss on sale of other real estate and repossessed assets		68			(54	)
Change in
Interest receivable and other assets		927			1,441
Interest payable and other liabilities		(541	)		(775	)
Other adjustments		(39	)		15
Net cash provided by operating activities		6,207			3,682
Investing Activities
Net change in interest-bearing time deposits		5,973			(912	)
Purchases of securities, available for sale		(37,305	)		(15,934	)
Proceeds from maturities and paydowns of securities, available for sale		6,332			6,730
Proceeds from sales of securities, available for sale		36,811			5,681
Purchase of Federal Home Loan Bank stock		-			(258	)
Net change in loans		(17,736	)		1,257
Net cash and cash equivalents paid in acquisition		(7,673	)		-
Purchases of premises and equipment		(390	)		(201	)
Proceeds from real estate owned sales		366			503
Proceeds from sale of real estate held for investment		-			502
Proceeds from bank owned life insurance		1,669			-
Proceeds from sale of premises and equipment		67			-
Net cash used in investing activities		(11,886	)		(2,632	)
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits		19,727			16,525
Certificates of deposit		3,462			1,016
Proceeds from FHLB advances		112,600			77,500
Repayments of FHLB advances		(124,700	)		(99,900	)
Proceeds from other borrowings		10,000			290
Repayments other borrowings		(138	)		-
Cash dividends		(1,544	)		(1,176	)
Stock options exercised		-			139
Net cash provided by (used in) financing activities		19,407			(5,606	)
Net Change in Cash and Cash Equivalents		13,728			(4,556	)
Cash and Cash Equivalents, Beginning of Period		27,341			26,860
Cash and Cash Equivalents, End of Period	$	41,069		$	22,304
Additional Cash Flows Information
Interest paid	$	3,026		$	2,292
Transfers from loans to foreclosed assets		445			273
Mortgage servicing rights capitalized		56			61
Purchases of securities, due to broker		-			1,052
In conjuction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired	$	406,928
Cash paid in acquisition		(18,999	)
Common stock issued		(42,323	)
Liabilities assumed	$	345,606		$	-

See notes to consolidated condensed financial statements

5

MutualFirst Financial, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

(In Thousands, Except Share and Per Share Data)

Note 1:  Basis of Presentation

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

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on March 15, 2018.

The interim consolidated condensed financial statements at and for the three months ended March 31, 2018 and 2017, have not been audited by independent accountants, but in the opinion of management, reflect all adjustments necessary to present fairly the financial position, results of operations and cash flows for such periods. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

The Consolidated Condensed Balance Sheet of the Company as of December 31, 2017 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

Note 2:  Acquisitions

On February 28, 2018, the Company completed the 100% acquisition of Universal Bancorp (“Universal”). Universal and BloomBank, a wholly-owned subsidiary of Universal, merged with and into the Company and the Bank, respectively. BloomBank was headquartered in Bloomfield, Indiana and had 13 retail financial center offices serving counties in central and southern Indiana. Under terms of the merger agreement, shareholders of Universal received fixed consideration of 15.6 shares of MutualFirst common stock and $250.00 in cash for each share of Universal common stock. The Company issued approximately 1.2 million shares of common stock, which was valued at approximately $42.3 million. Based upon the February 28, 2018 closing price of $35.70 per share of MutualFirst common stock, the transaction has an implied valuation of approximately $61.3 million. The Company incurred approximately $605,000 in expenses related to the acquisition in the first three months of 2018. These expenses are classified in the non-interest expense section of the income statement, primarily in professional fees and other expenses. As a result of the acquisition, the Company was able to increase both its deposit and loan base and expects to reduce costs through economies of scale. Goodwill resulted from this transaction due to the expected synergies and economies of scale.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired, liabilities assumed and related deferred tax impacts, which are based on assumptions that are subject to change as management continues to evaluate, the purchase price for the Universal acquisition is detailed in the following table. If prior to the end of the one-year measurement period for finalizing the purchase price allocation, information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be recorded in the reporting period in which the adjustment amounts are determined. The measurement period adjustments will be calculated as if the accounting had been completed as of the acquisition date.

6

Assets
Cash and cash equivalents	$	11,326
Interest-bearing time deposits		8,747
Investment securities, available for sale		87,817
Loans
Commercial		203,621
Residential mortgage		36,410
Consumer		12,532
Total loans		252,563
Premises and equipment, net		4,799
Federal Home Loan Bank stock		1,637
Deferred tax asset, net		2,056
Cash value of life insurance		7,556
Goodwill		22,069
Core deposit intangible		4,545
Interest receivable		1,259
Other real estate owned and repossessed assets		1,009
Other assets		1,545
Total assets purchased	$	406,928
Common shares issued	$	42,323
Cash paid		18,999
Total purchase price	$	61,322
Liabilities
Deposits
Non-interest bearing	$	81,061
NOW accounts		66,372
Savings and money market		85,690
Certificated of deposits		82,107
Total deposits		315,230
Borrowings		25,463
Interest payable		81
Subordinated debt		4,000
Other liabilities		832
Total liabilities assumed	$	345,606

Of the total purchase price, $4.5 million has been allocated to a core deposit intangible that will be amortized over its estimated life of 15 years. Of the remaining purchase price, $22.1 million has been allocated to goodwill, which is not deductible for tax purposes. Loans acquired had a fair value of $252.6 million. The contractual principal at the acquisition date was $257.2 million and the estimate of the contractual cash flows not expected to be collected is $4.6 million.

Pro Forma Financial Information

The results of operations of Universal Bancorp have been included in the Corporation’s consolidated financial statements since the acquisition date. The following schedule includes pro forma results for the three months ended March 31, 2018 and 2017, as if the Universal acquisition occurred as of the beginning of the reporting periods presented.

	Three Months Ended March 31,
	2018			2017
Summary of Operations
Net interest income	$	15,875		$	15,621
Provision for loan losses		(450	)		(200	)
Net interest income after provision	$	15,425		$	15,421
Non-interest income		4,713			4,730
Non-interest expense		(18,795	)		(14,970	)
Income before income taxes	$	1,343		$	5,181
Income tax benefit (expense)		208			(1,212	)
Net income to common shareholders	$	1,551		$	3,969
Basic earnings per share	$	0.18		$	0.47
Diluted earnings per share	$	0.18		$	0.46

7

The pro-forma information for March 31, 2018 includes operating revenue from Universal of $1.4 million since the date of acquisition. Earnings of Universal since the acquisition date, net of tax and non-recurring expenses related to the acquisition were $1.2 million as of March 31, 2018. The pro forma information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

Note 3: Earnings Per Share

Earnings per share were computed as follows: 

	Three Months Ended March 31,
	2018						2017
	Net Income		Weighted- Average Shares		Per-Share Amount		Net Income		Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income	$	4,007		7,810,916	$	0.51	$	3,206		7,332,455	$	0.44
Effect of Dilutive Securities
Stock options				154,977						148,026
Diluted Earnings Per Share
Net income available and assumed conversions	$	4,007		7,965,893	$	0.50	$	3,206		7,480,481	$	0.43

As of March 31, 2018 and 2017, the exercise price for all options was lower than the average market price of the common shares.

Note 4: Impact of Accounting Pronouncements

In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-05, Income Taxes (Topic 740) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (“SAB”) No. 118. The ASU amends the Accounting Standards Codification to incorporate various SEC paragraphs pursuant to the issuance of SAB 118. SAB 118 addresses the application of generally accepted accounting principles in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. The Company has assessed ASU 2018-05 and does not expect it to have a material impact on the Company’s accounting and disclosures.

In February 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company has assessed ASU 2018-02 and does not expect it to have a material impact on the Company’s accounting and disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350)-Simplifying the Test for Goodwill Impairment. These amendments eliminate Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. The Company has assessed ASU 2017-04 and does not expect it to have a material impact on its accounting and disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805)-Clarifying the Definition of a Business. ASU 2017-01 provides amendments to clarify the definition of a business and affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and should be applied prospectively as of the beginning of the period of adoption. The Company adopted this ASU in the first quarter of 2018. Adoption of this ASU did not have a significant effect on the Company’s consolidated financial statements.

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. The Company adopted this ASU in the first quarter of 2018. Adoption of this ASU did not have a significant effect on the Company’s consolidated financial statements.

8

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 financial assets measured at amortized cost (primarily loans) 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. generally accepted accounting principles (“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 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. The Company adopted ASU 2016-01 on January 1, 2018 and it did not have a material effect on the Company’s consolidated financial statements.

In March 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU affects entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 for public entities to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company’s revenue is comprised of interest income on financial assets, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. We have completed our evaluation of the impact of ASU 2014-09 on components of our non-interest income including trust and investment management fees, insurance commissions and fees and have not found any significant changes to our methodology of recognizing revenue. As required by the ASU, the Company adopted the standard on January 1, 2018 and it did not have a material effect on the Company’s consolidated financial statements. See Item 2 of this Form 10-Q “Critical Accounting Policies” for additional information.

9

Note 5: Investment Securities

The amortized costs and approximate fair values, together with gross unrealized gains and losses on securities, are in the tables below. All mortgage-backed securities and collateralized mortgage obligations held as of March 31, 2018 and December 31, 2017 were guaranteed by government sponsored entities, government corporations or federal agencies.

	March 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale Securities
Mortgage-backed securities	$	96,027	$	250	$	(2,014	)	$	94,263
Collateralized mortgage obligations		111,800		95		(2,278	)		109,617
Municipal obligations		137,909		2,141		(1,572	)		138,478
Corporate obligations		12,966		22		(1,201	)		11,787
Total investment securities	$	358,702	$	2,508	$	(7,065	)	$	354,145

	December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale Securities
Mortgage-backed securities	$	68,335	$	225	$	(762	)	$	67,798
Collateralized mortgage obligations		88,488		58		(1,296	)		87,250
Municipal obligations		107,060		3,709		(274	)		110,495
Corporate obligations		12,966		69		(1,200	)		11,835
Total investment securities	$	276,849	$	4,061	$	(3,532	)	$	277,378

The amortized cost and fair value of securities available for sale at March 31, 2018, 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 of Securities	Amortized Cost		Fair Value
Security obligations due
Within one year	$	662	$	674
One to five years		10,483		10,515
Five to ten years		29,725		30,510
After ten years		110,005		108,566
		150,875		150,265
Mortgage-backed securities		96,027		94,263
Collateralized mortgage obligations		111,800		109,617
Totals	$	358,702	$	354,145

Proceeds from sales of securities available for sale for the three months ended March 31, 2018 and 2017 were $36.8 million and $5.7 million, respectively. Gross gains were recognized on the sales for the three months ended March 31, 2018 and 2017 of $154,000 and $129,000, respectively. There were no gross losses recognized on the sales of securities for the three months ended March 31, 2018 or 2017.

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 March 31, 2018 and December 31, 2017 was $206.0 million and $142.9 million, respectively, which were approximately 58.2% and 51.5%, respectively, of the Company’s investment portfolio at those dates.

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

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

10

During the first three months of 2018 and 2017, the Bank determined that its security holdings had no other-than-temporary impairment.

The following tables show the gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2018 and December 31, 2017:

	March 31, 2018
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for Sale Securities
Mortgage-backed securities	$	33,554	$	(815	)	$	26,218	$	(1,199	)	$	59,772	$	(2,014	)
Collateralized mortgage obligations		64,859		(1,034	)		27,433		(1,244	)		92,292		(2,278	)
Municipal obligations		41,553		(1,005	)		9,671		(567	)		51,224		(1,572	)
Corporate obligations		-		-			2,722		(1,201	)		2,722		(1,201	)
Total temporarily impaired securities	$	139,966	$	(2,854	)	$	66,044	$	(4,211	)	$	206,010	$	(7,065	)

	December 31, 2017
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for Sale Securities
Mortgage-backed securities	$	21,975	$	(127	)	$	27,675	$	(635	)	$	49,650	$	(762	)
Collateralized mortgage obligations		47,153		(400	)		28,887		(896	)	$	76,040	$	(1,296	)
Municipal obligations		4,479		(64	)		10,041		(210	)		14,520		(274	)
Corporate obligations		-		-			2,722		(1,200	)		2,722		(1,200	)
Total temporarily impaired securities	$	73,607	$	(591	)	$	69,325	$	(2,941	)	$	142,932	$	(3,532	)

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

The unrealized losses on the Company’s investment in MBSs and CMOs were caused by interest rate changes 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 any of these investments to be other-than-temporarily impaired at March 31, 2018.

Municipal Obligations

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 par value of the investments.  The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments. The Company does not consider any of these investment securities to be other-than-temporarily impaired at March 31, 2018.

Corporate Obligations

The Company’s unrealized losses on investments in corporate obligations primarily relates to two investments in pooled trust preferred securities. The unrealized losses were primarily caused by (1) a decrease in performance and regulatory capital resulting from exposure to subprime mortgages and (2) a sector downgrade by industry analysts.

11

Other-Than-Temporary Impairment (OTTI)

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

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

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

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 little demand for pooled trust preferred securities; however, the Company looks principally to market yields for stand-alone trust preferred securities issued by banks, thrifts and insurance companies for which there is an active and liquid market. The next step is to make a series of adjustments to reflect the differences that exist between these products (both credit and structural) and, most importantly, to reflect idiosyncratic credit performance differences (both actual and projected) between these products and the underlying collateral in the specific trust preferred security. Importantly, as part of the analysis described above, MutualFirst considers the fact that structured instruments frequently exhibit leverage not present in stand-alone instruments, and makes adjustments as necessary to reflect this additional risk.

12

Pooled Trust Preferred Securities. The Bank has invested in pooled trust preferred securities. At March 31, 2018, the current book value of our pooled trust preferred securities was $3.9 million. The original par value of these securities was $4.0 million. All pooled trust preferred securities owned were performing as agreed in the first three months of 2018. As of May 2017, current Moody’s rated these bonds as Aa3 for Alesco Preferred Funding IX and Ba2 for U.S. Capital Funding I. 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 pooled trust preferred securities as of March 31, 2018:

Deal Name	Class	Original Par		Book Value		Fair Value		Unrealized Loss			Realized Losses 2018		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	Aa3	$	1,000	$	923	$	599	$	(323	)	$	-	CCC-		45		48		2.85	%		8.23	%		53.61	%
U.S. Capital Funding I	B3		3,000		3,000		2,122		(878	)		-	Caa1		26		30		5.92	%		5.92	%		12.29	%
		$	4,000	$	3,923	$	2,721	$	(1,201	)	$	-

(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.

13

Note 6: Loans and Allowance

Classes of loans at March 31, 2018 and December 31, 2017 include:

	March 31,			December 31,
	2018			2017
Real estate
Commercial	$	490,885		$	318,684
Commercial construction and development		52,889			28,164
Consumer closed end first mortgage		476,422			444,243
Consumer open end and junior liens		75,942			69,477
Total real estate loans		1,096,138			860,568
Other loans
Consumer loans
Auto		22,110			19,640
Boat/RVs		175,747			169,238
Other		6,190			6,188
Commercial and industrial		152,276			131,079
Total other loans		356,323			326,145
Total loans		1,452,461			1,186,713
Undisbursed loans in process		(9,502	)		(13,071	)
Unamortized deferred loan costs, net		6,467			6,503
Allowance for loan losses		(12,537	)		(12,387	)
Net loans	$	1,436,889		$	1,167,758

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

Commercial

Real estate

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

Construction and Development

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

Commercial and Industrial

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

14

Consumer Real Estate and Other Consumer Loans

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

Nonaccrual Loans and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when the loan is greater than 90 days past due, the borrower, in management’s opinion, may be unable to meet payment obligations as they become due or when required by regulatory provisions.

All interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured and generally only after six months of satisfactory performance.

Nonaccrual loans, segregated by class of loans, as of March 31, 2018 and December 31, 2017 are as follows:

	March 31,		December 31,
	2018		2017
Real estate
Commercial	$	1,377	$	1,107
Commercial construction and development		-		-
Consumer closed end first mortgage		3,616		3,409
Consumer open end and junior liens		223		309
Consumer loans
Auto		11		22
Boat/RVs		367		198
Other		52		16
Commercial and industrial		182		159
Total nonaccrual loans	$	5,828	$	5,220

15

An age analysis of the Company’s past due loans, segregated by class of loans, as of March 31, 2018 and December 31, 2017 are as follows:

	March 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	2,263	$	3,407	$	905	$	6,575	$	484,310	$	490,885	$	-
Commercial construction and development		40		-		-		40		52,849		52,889		-
Consumer closed end first mortgage		5,583		1,462		3,004		10,049		466,373		476,422		22
Consumer open end and junior liens		295		101		211		607		75,335		75,942		10
Consumer loans
Auto		102		45		10		157		21,953		22,110		-
Boat/RVs		718		299		230		1,247		174,500		175,747		-
Other		132		9		57		198		5,992		6,190		5
Commercial and industrial		275		9		183		467		151,809		152,276		-
Total	$	9,408	$	5,332	$	4,600	$	19,340	$	1,433,121	$	1,452,461	$	37

	December 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	2,171	$	3,311	$	998	$	6,480	$	312,204	$	318,684	$	-
Commercial construction and development		-		-		-		-		28,164		28,164		-
Consumer closed end first mortgage		5,914		1,340		3,224		10,478		433,765		444,243		31
Consumer open end and junior liens		540		123		264		927		68,550		69,477		-
Consumer loans
Auto		114		24		1		139		19,501		19,640		-
Boat/RVs		1,613		338		103		2,054		167,184		169,238		-
Other		65		18		12		95		6,093		6,188		-
Commercial and industrial		276		10		159		445		130,634		131,079		-
Total	$	10,693	$	5,164	$	4,761	$	20,618	$	1,166,095	$	1,186,713	$	31

16

Impaired Loans

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

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

The following tables present impaired loans as of and for the three month periods ended March 31, 2018 and 2017 and as of and for the year ended December 31, 2017.

	March 31, 2018
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	801	$	801	$	-	$	839	$	-
Commercial construction and development		668		668		-		684		7
Consumer closed end first mortgage		1,411		1,411		-		1,477		1
Commercial and industrial		152		152		-		212		-
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		214		1
Total
Real estate
Commercial	$	1,015	$	1,015	$	100	$	1,053	$	1
Commercial construction and development	$	668	$	668	$	-	$	684	$	7
Consumer closed end first mortgage	$	1,411	$	1,411	$	-	$	1,477	$	1
Commercial and industrial	$	152	$	152	$	-	$	212	$	-
Total	$	3,246	$	3,246	$	100	$	3,426	$	9

17

	March 31, 2017
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	813	$	813	$	-	$	739	$	-
Commercial construction and development		792		792		-		807		9
Consumer closed end first mortgage		1,850		1,850		-		1,859		-
Commercial and industrial		179		179		-		183		1
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		214		-
Total
Real estate
Commercial	$	1,027	$	1,027	$	100	$	953	$	-
Commercial construction and development	$	792	$	792	$	-	$	807	$	9
Consumer closed end first mortgage	$	1,850	$	1,850	$	-	$	1,859	$	-
Commercial and industrial	$	179	$	179	$	-	$	183	$	1
Total	$	3,848	$	3,848	$	100	$	3,802	$	10

	December 31, 2017
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	878	$	878	$	-	$	765	$	1
Commercial construction and development		700		700		-		762		33
Consumer closed end first mortgage		1,543		1,543		-		1,451		1
Consumer open end and junior liens						-
Commercial and industrial		272		342		-		216		5
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		214		-
Total
Real estate
Commercial	$	1,092	$	1,092	$	100	$	979	$	1
Commercial construction and development	$	700	$	700	$	-	$	762	$	33
Consumer closed end first mortgage	$	1,543	$	1,543	$	-	$	1,451	$	1
Consumer open end and junior liens	$	-	$	-	$	-	$	-	$	-
Commercial and industrial	$	272	$	342	$	-	$	216	$	5
Total	$	3,607	$	3,677	$	100	$	3,408	$	40

18

The following information presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of March 31, 2018.

Commercial Loan Grades

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

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

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

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

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

Retail Loan Grades

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

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

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

Special mention commercial real estate loans increased as management determined that a few credits had potential weaknesses deserving management’s close attention. All of these credits were performing as agreed as of March 31, 2018.

19

	March 31, 2018
	Commercial								Consumer
	Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial	$	472,398	$	10,996	$	7,474	$	17							$	490,885
Commercial construction and development		52,221		-		668		-								52,889
Consumer closed end first mortgage									$	470,769	$	-	$	5,653		476,422
Consumer open end and junior liens										75,590		-		352		75,942
Other loans
Consumer loans
Auto										22,085		-		25		22,110
Boat/RVs										175,358		-		389		175,747
Other										6,111		-		79		6,190
Commercial and industrial		139,761		5,665		6,850		-								152,276
	$	664,380	$	16,661	$	14,992	$	17	$	749,913	$	-	$	6,498	$	1,452,461

	December 31, 2017
	Commercial								Consumer
	Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard			Total
Real estate
Commercial	$	309,451	$	4,219	$	4,996	$	18							$	318,684
Commercial construction and development		27,464		-		700		-								28,164
Consumer closed end first mortgage									$	439,075	$	-	$	5,168		444,243
Consumer open end and junior liens										69,130		-		347		69,477
Other loans
Consumer loans
Auto										19,616		-		24		19,640
Boat/RVs										169,036		-		202		169,238
Other										6,133		-		55		6,188
Commercial and industrial		120,211		5,784		5,084		-								131,079
	$	457,126	$	10,003	$	10,780	$	18	$	702,990	$	-	$	5,796	$	1,186,713

20

Allowance for Loan Losses.

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

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

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

The following table details activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2018 and 2017, respectively. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other segments.

	Three Months Ended March 31, 2018
	Commercial			Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	7,704		$	1,761		$	2,922		$	12,387
Provision charged (credited) to expense		408			(49	)		91			450
Losses charged off		(138	)		(20	)		(214	)		(372	)
Recoveries		-			8			64			72
Balance, end of period	$	7,974		$	1,700		$	2,863		$	12,537

	Three Months Ended March 31, 2017
	Commercial		Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	7,358	$	2,303		$	2,721		$	12,382
Provision charged (credited) to expense		32		17			151			200
Losses charged off		-		(45	)		(204	)		(249	)
Recoveries		7		4			38			49
Balance, end of period	$	7,397	$	2,279		$	2,706		$	12,382

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The following tables provide a breakdown of the allowance for loan losses and loan portfolio balances by segment as of March 31, 2018 and 2017, and December 31, 2017.

	March 31, 2018
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,874		1,700		2,863		12,437
Loans acquired with deteriorated credit quality		-		-		-		-
Total allowance for loan losses	$	7,974	$	1,700	$	2,863	$	12,537
Loan balances
Individually evaluated for impairment	$	1,835	$	1,411	$	-	$	3,246
Collectively evaluated for impairment		693,903		475,011		279,989		1,448,903
Loans acquired with deteriorated credit quality		312		-		-		312
Gross loans	$	696,050	$	476,422	$	279,989	$	1,452,461

	March 31, 2017
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,297		2,279		2,706		12,282
Total allowance for loan losses	$	7,397	$	2,279	$	2,706	$	12,382
Loan balances
Individually evaluated for impairment	$	1,998	$	1,850	$	-	$	3,848
Collectively evaluated for impairment		454,481		473,497		239,561		1,167,539
Gross loans	$	456,479	$	475,347	$	239,561	$	1,171,387

	December 31, 2017
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,604		1,761		2,922		12,287
Total allowance for loan losses	$	7,704	$	1,761	$	2,922	$	12,387
Loan balances
Individually evaluated for impairment	$	2,064	$	1,543	$	-	$	3,607
Collectively evaluated for impairment		475,863		442,700		264,543		1,183,106
Gross loans	$	477,927	$	444,243	$	264,543	$	1,186,713

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

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

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

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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 if the collection of principal and interest is reasonably assured and generally stays on accrual.

At March 31, 2018, the Company had loans that were modified in troubled debt restructurings. The modification of terms of such loans included one or a combination of the following: an extension of maturity or a reduction of the stated interest rate.

The following tables describe troubled debts restructured during the three month periods ended March 31, 2018 and 2017:

	Three Months Ended
	March 31, 2018						March 31, 2017
	No. of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance		No. of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance
Real estate
Commercial		3	$	138	$	140		-	$	-	$	-
Consumer closed end first mortgage		3		47		59		1		65		67
Consumer open end and junior liens		1		36		36		-		-		-
Commercial and industrial		1		61		61		1		72		72

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

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Newly restructured loans by type for the three months ended March 31, 2018 and 2017 are as follows:

	Three Months Ended March 31, 2018
	Rate		Term		Combination		Total Modification
Real estate
Commercial	$	-	$	-	$	140	$	140
Consumer closed end first mortgage		-		-		59		59
Consumer open end and junior liens		-		36		-		36
Commercial and industrial		-		61		-		61

	Three Months Ended March 31, 2017
	Rate		Term		Combination		Total Modification
Real estate
Consumer closed end first mortgage	$	-	$	-	$	67	$	67
Commercial and industrial		-		72		-		72

There were no defaults on loans modified as troubled debt restructurings made in the three months ended March 31, 2018 and 2017. Defaults are defined as any loans that become 90 days past due.

At March 31, 2018, the Company had residential real estate held for sale as a result of foreclosure totaling $1.4 million and real estate in the process of foreclosure of $1.2 million. As of March 31, 2018, the Company also held $363,000 in other repossessed assets, such as autos, boats, RVs and horse trailers.

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Note 7: Accounting for Certain Loans Acquired in a Transfer

The Company acquired loans in the acquisition of Universal and the transferred loans had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. The Company acquired two loans with evidence of credit deterioration recorded at a fair value of $313,000.

The following table presents the carrying amounts of the acquired loans included in the balance sheet amounts of loans receivable as of March 31, 2018.

	March 31, 2018
Outstanding balance
Real estate
Commercial	$	161,334
Commercial construction and development		22,849
Consumer closed end first mortgage		37,774
Consumer open end and junior liens		9,318
Total real estate loans		231,275
Other loans
Consumer loans
Auto		2,150
Boat/RVs		173
Other		919
Commercial and industrial		22,690
Total other loans		25,932
Total loans	$	257,207
Carrying amount	$	252,989
Allowance		-
Carrying amount net of allowance	$	252,989

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Note 8: 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 March 31, 2018 and December 31, 2017 was approximately $18.1 million and $17.3 million, respectively.

The following table shows the amounts of derivative financial instruments at March 31, 2018 and December 31, 2017.

	Asset Derivatives
		Fair Value					Fair Value
	Balance Sheet	March 31,		December 31,		Balance Sheet	March 31,		December 31,
	Location	2018		2017		Location	2018		2017
Derivatives not designated as hedging instruments:
Interest rate contracts	Other assets	$	867	$	525	Other liabilities	$	867	$	525

Note 9: Accumulated Other Comprehensive Income (Loss)

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

	March 31,			December 31,
	2018			2017
Net unrealized gain (loss) on securities available for sale	$	(4,556	)	$	529
Net unrealized gain relating to defined benefit plan liability		10			10
		(4,546	)		539
Tax benefit (expense)		921			(158	)
Net of tax amount	$	(3,625	)	$	381

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The following table presents the reclassification adjustments out of accumulated other comprehensive income that were included in net income in the Consolidated Statements of Income for the three months ended March 31, 2018 and 2017.

	Amount Reclassified from Accumulated Other Comprehensive Income For the Three Months Ended
	March 31,
Details about Accumulated Other Comprehensive Income Components	2018			2017			Affected Line Item in the Statements of Income
Realized gains on available for sale securities
Realized securities gains reclassified into income	$	154		$	129		Total non-interest income - net realized gains on sale of available for sale securities
Related income tax expense		(32	)		(44	)	Income tax expense
Total reclassifications for the period, net of tax	$	122		$	85

Note 10: Fair Values of Financial Instruments

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

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

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

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

Items Measured at Fair Value on a Recurring Basis

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

Available-for-Sale Securities

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

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

Interest Rate Derivative Agreements

Interest rate swap positions, both assets and liabilities, are valued by a third-party pricing agent using an income approach and utilizing models that use as their basis readily observable market parameters. This valuation process considers various factors including interest rate yield curves, time value and volatility factors.

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

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			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
March 31, 2018
Available for sale securities
Mortgage-backed securities	$	94,263	$	-	$	94,263	$	-
Collateralized mortgage obligations		109,617		-		109,617		-
Municipal obligations		138,478		-		138,478		-
Corporate obligations		11,787		-		9,066		2,721
Interest rate swap asset		867		-		867		-
Interest rate swap liability		867		-		867		-

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2017
Available for sale securities
Mortgage-backed securities	$	67,798	$	-	$	67,798	$	-
Collateralized mortgage obligations		87,250		-		87,250		-
Municipal obligations		110,495		-		110,495		-
Corporate obligations		11,835		-		9,114		2,721
Interest rate swap asset		525		-		525		-
Interest rate swap liability		525		-		525		-

The following is a reconciliation of the beginning and ending balances for the three months ended March 31, 2018 and 2017 of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

	Three Months Ended
	March 31,
	2018		2017
Beginning balance	$	2,721	$	2,588
Total realized and unrealized gains (losses)
Included in net income		-		-
Included in other comprehensive income (loss)		-		-
Purchases, issuances and settlements		-		-
Ending balance	$	2,721	$	2,588
Total gains 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	$	-	$	-

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Items Measured at Fair Value on a Non-Recurring Basis

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

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

March 31, 2018	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,721	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		29.3 - 34.9	%
Impaired loans (collateral dependent)	$	591	Third party valuations	Discount to reflect realizable value		8.97	%

December 31, 2017	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,721	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		29.3 - 34.9	%

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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
March 31, 2018	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	41,069	$	41,069	$	41,069	$	-	$	-
Interest-bearing time deposits		4,627		4,627		4,627		-		-
Loans held for sale		3,686		3,740		-		3,740		-
Loans, net		1,436,889		1,407,437		-		-		1,407,437
FHLB stock		12,820		12,820		-		12,820		-
Interest receivable		5,809		5,809		-		5,809		-
Interest rate swap asset		867		867		-		867		-
Liabilities
Deposits		1,540,452		1,534,582		1,083,726		-		450,856
FHLB advances		230,546		227,428		-		227,428		-
Other borrowings		18,110		18,000		-		18,000		-
Interest payable		593		593		-		593		-
Interest rate swap liability		867		867		-		867		-

					Fair Value Measurements Using
December 31, 2017	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	27,341	$	27,341	$	27,341	$	-	$	-
Interest-bearing time deposits		1,853		1,853		1,853		-		-
Loans held for sale		4,577		4,584		-		4,584		-
Loans, net		1,167,758		1,150,005		-		-		1,150,005
FHLB stock		11,183		11,183		-		11,183		-
Interest receivable		5,282		5,282		-		5,282		-
Interest rate swap asset		525		525		-		525		-
Liabilities
Deposits		1,202,034		1,199,781		830,877		-		368,904
FHLB advances		217,163		215,326		-		215,326		-
Other borrowings		4,232		4,300		-		4,300		-
Interest payable		456		456		-		456		-
Interest rate swap liability		525		525		-		525		-

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

The following should be read in conjunction with the Management’s Discussion and Analysis in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on March 15, 2018.

MutualFirst is a Maryland corporation and a bank holding company headquartered in Muncie, Indiana, with banking operations in Allen, Delaware, Elkhart, Grant, Greene, Hamilton, Jackson, Johnson, Knox, Kosciusko, Lawrence, Monroe, Randolph, St. Joseph and Wabash counties in Indiana. It owns MutualBank, an Indiana commercial bank with 39 full-service branches in Indiana, trust offices in Fishers and Crawfordsville, Indiana and a loan origination office in New Buffalo, Michigan. MutualBank’s wholly owned subsidiary, Summit Service Corp, owns Summit Mortgage, a mortgage banking company located in Ft. Wayne, Indiana. The Company is subject to examination, supervision and regulation by the Federal Reserve Board (FRB), and the Bank is subject to regulation, supervision and examination by the Indiana Department of Financial Institutions (IDFI) and the Federal Deposit Insurance Corporation (FDIC).

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

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

First Quarter Highlights. At March 31, 2018, we had $2.0 billion in assets, $1.4 billion in net loans, $1.5 billion in deposits and $191.1 million in stockholders’ equity. The Company’s total risk-based capital ratio at March 31, 2018 was 12.3%, exceeding the 10.0% requirement for a well-capitalized institution. Tangible common equity, as a percentage of tangible assets, decreased to 8.3% as of March 31, 2018 compared to 9.4% and 9.1% at December 31, 2017 and March 31, 2017, respectively. For the quarter ended March 31, 2018, net income was $4.0 million, or $0.50 diluted earnings per common share, compared with net income of $3.2 million, or $0.43 diluted earnings per common share for the quarter ended March 31, 2017.

On February 28, 2018, the Company acquired Universal Bancorp, which resulted in $406.9 million of additional assets. Additional details of the acquisition are discussed within Note 2 – Acquisitions, in the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q. The Company’s total loan portfolio increased $269.1 million, with the acquisition of Universal contributing $252.6 million in total loans. The largest loan segments that experienced increases were commercial real estate, consumer closed end first mortgages, commercial construction and development, and commercial and industrial. Additional details of the changes in the Company’s loans are discussed within Note 7 – Accounting for Certain Loans Acquired, in the Notes to the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q. The Universal acquisition resulted in $315.2 million of additional deposits.

The Management’s Discussion and Analysis in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, contains a summary of our management’s strategic plan for 2015-2019. The financial highlights of our strategic progress during the quarter include:

· Commercial and non-real estate consumer lending was 62.0% of the lending portfolio as of March 31, 2018 compared to 56.7% at December 31, 2017.

· Core deposits were $1.1 billion, or 70.4% of total deposits as of March 31, 2018 compared to 69.1% at December 31, 2017.

· Commission income from wealth and investment services increased $66,000, or 5.5%, during the first quarter 2018 compared to the same period in 2017.

Critical Accounting Policies

Note 1 to the Consolidated Financial Statements in Item 8 of the Form 10-K for the year ended December 31, 2017 contains a summary of the Company’s significant accounting policies. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include determining the allowance for loan losses, the valuation of foreclosed assets, mortgage servicing rights, valuation of intangible assets and securities, deferred tax asset and income tax accounting.

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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. 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. Management reviews the adequacy of the allowance for loan losses on at least a quarterly basis. The evaluation by management includes consideration of past loss experience, changes in the composition of the loan portfolio, the current condition and amount of loans outstanding, identified problem loans and the probability of collecting all amounts due.

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

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

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

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

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

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

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

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.

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Deferred Tax Asset. The Company has evaluated its deferred tax asset to determine if it is more likely than not that the asset will be utilized in the future. The Company’s most recent evaluation has determined that, except for the amounts represented by the valuation allowance in Note 15 to the Consolidated Financial Statements in Item 8 of the Form 10-K for the year ended December 31, 2017, the Company will more likely than not be able to utilize the remaining deferred tax asset. As of year-end 2017, the Company had generated average annual positive pre-tax pre-provision earnings of $17.3 million, or 1.2% of pre-tax pre-provision ROA over the previous five years. This level of earnings, if maintained in the future, would be sufficient to utilize portions of the operating losses, tax credit carryforwards and temporary tax differences over the allowable periods. The analysis as of March 31, 2018, supports no additional valuation reserve is needed.

The valuation allowances established is the result of net operating losses for state franchise tax purposes totaling $17.9 million. See Note 15 to the Consolidated Financial Statements in Item 8 of the Form 10-K for the year ended December 31, 2017.

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.

The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 reducing the Company’s federal corporate tax rate from 34% to 21%, effective January 1, 2018. At March 31, 2018, the Company has completed its accounting for the tax effects of enactment of the Tax Act.

Revenue Recognition. The Company recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectibility is reasonably assured. The Company’s principal source of revenue is interest income from loans and leases and investment securities. The Company also earns noninterest income from various banking and financial services offered primarily through the Bank and its subsidiaries.

Interest Income – The largest source of revenue for the Company is interest income which is primarily recognized on an accrual basis according to nondiscretionary formulas in written contracts, such as loan and lease agreements or investment securities contracts.

Noninterest Income – The Company earns noninterest income through a variety of financial and transaction services provided to business and consumer clients such as trust and wealth advisory, deposit account, debit card, and mortgage banking. Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed. In certain circumstances, noninterest income is reported net of associated expenses.

Forward-Looking Statements

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

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

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

Financial Condition

General. Total assets at March 31, 2018 were $2.0 billion, reflecting a $407.2 million increase since December 31, 2017, primarily as a result of the acquisition of Universal. The gross loan portfolio increased by $265.7 million primarily due to acquiring a $252.6 million net portfolio in the first quarter of 2018. Total liabilities as of March 31, 2018 were $1.8 billion, an increase of $366.4 million compared to December 31, 2017, primarily due to a $338.4 million increase in deposits of which $315.2 million came in the acquisition. Total stockholders’ equity increased to $191.1 million, an increase of $40.8 million compared to December 31, 2017 primarily due to $42.3 million of capital issued as part of the acquisition of Universal.

Loans. Our gross loan portfolio, excluding loans held for sale, increased $265.7 million at March 31, 2018 to $1.4 billion. The following table reflects the changes in the gross amount of loans, excluding loans held for sale, by type during the three month period:

	March 31,		December 31,		Amount		Percent
	2018		2017		Change		Change
Real estate
Commercial	$	490,885	$	318,684	$	172,201		54.04	%
Commercial construction and development		52,889		28,164		24,725		87.79
Consumer closed end first mortgage		476,422		444,243		32,179		7.24
Consumer open end and junior liens		75,942		69,477		6,465		9.31
Total real estate loans		1,096,138		860,568		235,570		27.37
Consumer loans
Auto		22,110		19,640		2,470		12.58
Boat/RV		175,747		169,238		6,509		3.85
Other		6,190		6,188		2		0.03
Total consumer other		204,047		195,066		8,981		4.60
Commercial and industrial		152,276		131,079		21,197		16.17
Total other loans		356,323		326,145		30,178		9.25
Total Gross Loans	$	1,452,461	$	1,186,713	$	265,748		22.39	%

The Company’s strategy to increase commercial and non-real estate consumer loans remains a primary focus as we continued to see growth in these areas during the first three months of 2018. Commercial and non-real estate consumer loans increased by $227.1 million to $900.1 million. The acquisition accelerated our progress toward achieving toward our strategic objectives in the first quarter of 2018. We continue to seek to provide sound commercial borrowers opportunities for new loans to meet their growing demands, refinance loans currently served by other financial institutions and build relationships with commercial clients in our footprint. The organic loan growth of $14.2 million was primarily in commercial loans in the first quarter of 2018. Consumer real estate loans increased by $38.6 million during the period. The Company 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 March 31, 2018, our total loans delinquent 30-to-89 days were $14.7 million or 1.0% of total loans, down from $15.9 million or 1.3% of total loans at the year-end of 2017. This was primarily due to a decrease in delinquencies on boat and RV loans.

At March 31, 2018, our non-performing assets totaled $7.6 million or 0.39% of total assets, compared to $6.0 million or 0.38% of total assets at December 31, 2017. This $1.6 million, or 27.3% increase was primarily due to $1.0 million of real estate held for sale as a result of foreclosed real estate acquired in the acquisition of Universal.

The table below sets forth the amounts and categories of non-performing assets at the dates indicated.

	March 31,		December 31,		Amount		Percent
	2018		2017		Change		Change
Non-accruing loans	$	5,828	$	5,220	$	608		11.65	%
Accruing loans delinquent 90 days		38		31		7		22.58
Foreclosed assets		1,753		733		1,020		139.15
Total	$	7,619	$	5,984	$	1,635		27.32	%

The Company continues to diligently monitor and write down loans that appear to have irreversible weakness. The Company works to ensure possible problem loans have been identified and steps have been taken to reduce loss by restructuring loans to improve cash flow or by increasing collateral. Total classified assets increased by 34.3% from $17.3 million at December 31, 2017 to $23.2 million at March 31, 2018 due to a $2.5 million increase in commercial real estate and $1.8 million increase in commercial and industrial loans classified as substandard credits.

At March 31, 2018, foreclosed real estate totaled $1.4 million compared to $251,000 at December 31, 2017. At March 31, 2018, all foreclosed real estate owned was in consumer or commercial real estate. As of March 31, 2018, the Company also held $363,000 in other repossessed assets, such as autos, boats, RVs and horse trailers.

Allowance for Loan Losses. Allowance for loan losses increased to $12.5 million as of March 31, 2018 compared to $12.4 million as of December 31, 2017. The allowance for loan losses to non-performing loans as of March 31, 2018 was 213.8% compared to 235.9% as of December 31, 2017. The allowance for loan losses to total loans as of March 31, 2018 was 0.86% compared to 1.05% as of December 31, 2017. Non-performing loans to total loans at March 31, 2018 were 0.40% compared to 0.44% at December 31, 2017. Non-performing assets to total assets were 0.38% at March 31, 2018 and December 31, 2017.

Deposits. Deposits increased by $338.4 million in the first three months of 2018 primarily due to an increase of $315.2 million due to the acquisition. The increase in deposits was a result of a $252.8 million increase in core deposits to $1.1 billion and $85.6 million increase in certificates of deposit to $456.7 million. Core deposits are currently 70.4% of the Bank’s total deposits as of March 31, 2018.

	At
	March 31, 2018					December 31, 2017
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
Type of Account:
Non-interest Checking	$	288,996		0.00	%	$	194,134		0.00	%
Interest-bearing NOW		391,209		0.51			330,821		0.52
Savings		192,819		0.01			138,348		0.01
Money Market		210,702		0.45			167,574		0.46
Certificates of Deposit		456,726		1.41			371,157		1.42
Total	$	1,540,452		0.61	%	$	1,202,034		0.65	%

Borrowings. Total borrowings increased to $248.7 million at March 31, 2018, up $27.3 million, or 11.0%, since year-end 2017. The increase was primarily due to acquiring $25.5 million in FHLB advances through the acquisition of Universal, partially offset by paydowns of existing FHLB advances. Other borrowings, a subordinated debenture and term notes, increased $14.0 million at March 31, 2018 as a result of the acquisition of Universal.

The Company acquired $5.0 million of issuer trust preferred securities in the 2008 acquisition of MFB Corp, which had a net balance of $4.2 million at March 31, 2018 due to the purchase accounting adjustment in that acquisition. These securities mature 30 years from the date of issuance, or September 15, 2035. The securities bear a rate of interest of the prevailing three-month LIBOR rate plus 170 basis points. The Company has the right to redeem the trust preferred securities, in whole or in part, without penalty.

The Company acquired $5.0 million of issuer trust preferred securities in the acquisition of Universal, which had a net balance of $4.0 million at March 31, 2018 due to the purchase accounting adjustment in the acquisition. These securities mature 30 years from the date of issuance, or October 7, 2035. The subordinated debenture bears a rate of interest of the prevailing three-month LIBOR rate plus 169 basis points. The Company has the right to redeem the trust preferred securities, in whole or in part, without penalty.

The Company borrowed $10.0 million in two $5.0 million term notes from First Tennessee Bank, N.A. to use in the acquisition of Universal. These loans had a combined balance of $9.9 million at March 31, 2018. The fixed rate term note matures 5 years from the date of issuance, or February 28, 2023. This term note bears a fixed rate of interest of 4.99% per annum. The variable rate term note matures 5 years from the date of issuance, or February 28, 2023. This term note bears a rate of interest of the prevailing three-month LIBOR rate plus 195 basis points. The Company has the right to redeem either note at any time, in whole or in part, without penalty.

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Stockholders’ Equity. Stockholders’ equity was $191.1 million at March 31, 2018, an increase of $40.8 million from December 31, 2017. The increase was primarily due to $42.3 million of capital issued in connection with the acquisition of Universal. The increase included net income available to common shareholders of $4.0 million. These increases were offset by a decrease in accumulated other comprehensive income of $4.0 million, due to market value changes in the investment portfolio, and common stock cash dividends paid of $1.5 million during the first quarter of 2018. The Company’s tangible book value per common share as of March 31, 2018 decreased to $18.92 compared to $20.08 as of December 31, 2017 and the tangible common equity ratio decreased to 8.25% as of March 31, 2018 compared to 9.35% as of December 31, 2017. The decreases in tangible book value per share and the tangible common equity ratio were due to the reasons noted above, as well as the recording of $22.1 million of goodwill and $4.5 million in core deposit intangible in connection with the acquisition of Universal. The Company’s and the Bank’s risk-based capital ratios were well in excess of “well-capitalized” levels as defined by all regulatory standards as of March 31, 2018.

Comparison of Results of Operations for the Three Months Ended March 31, 2018 and 2017.

General. Net income for the three months ended March 31, 2018 was $4.0 million, or $0.50 diluted earnings per common share compared to net income of $3.2 million, or $0.43 diluted earnings per common share for the three months ended March 31, 2017. Annualized return on average assets was 0.93% and annualized return on average tangible common equity was 10.53% for the first quarter of 2018 compared to 0.82% and 9.23% respectively, for the same period of 2017. 

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

	Three Months Ended
	March 31, 2018								March 31, 2017
	Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate			Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate
Interest-Earning Assets:
Interest -bearing deposits	$	21,686		$	67		1.24	%	$	21,425		$	25		0.47	%
Investment securities, available for sale (1):
MBS/CMO		175,951			1,127		2.56			161,169			998		2.48
Other		130,858			1,039		3.18			91,578			722		3.15
Loans receivable		1,280,521			14,325		4.47			1,172,551			12,249		4.18
Stock in FHLB of Indianapolis		11,765			190		6.46			11,117			115		4.14
Total interest-earning assets (1)		1,620,781			16,748		4.13			1,457,840			14,109		3.87
Non-interest earning assets, net of allowance for loan losses and unrealized gain/loss		108,909								97,384
Total assets	$	1,729,690							$	1,555,223
Interest-Bearing Liabilities:
Demand and NOW accounts	$	344,426			437		0.51		$	292,641			200		0.27
Savings deposits		157,519			5		0.01			139,435			4		0.01
Money market accounts		183,643			220		0.48			175,048			125		0.29
Certificate accounts		405,893			1,445		1.42			385,155			1,137		1.18
Total deposits		1,091,481			2,107		0.77			992,279			1,466		0.59
Borrowings		234,946			1,057		1.80			229,919			930		1.62
Total interest-bearing liabilities		1,326,427			3,164		0.95			1,222,198			2,396		0.78
Non-interest bearing deposit accounts		223,763								176,455
Other liabilities		16,047								15,489
Total liabilities		1,566,237								1,414,142
Stockholders' equity		163,453								141,082
Total liabilities and stockholders' equity	$	1,729,690							$	1,555,224
Net earning assets	$	294,354							$	235,642
Net interest income				$	13,584							$	11,713
Net interest rate spread (3)							3.18	%							3.09	%
Net interest margin (3)							3.35	%							3.21	%
Net interest margin, tax equivalent (2) (3)							3.42	%							3.32	%
Average interest-earning assets to
average interest-bearing liabilities		122.19	%							119.28	%

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

⁽²⁾ Tax equivalent margin is calculated by taking non-taxable interest and grossing up by 21% applicable tax rate beginning 2018 or 34% tax rate prior to 2018.

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

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Interest Income. Total interest income increased $2.6 million, or 18.7%, to $16.7 million during the three months ended March 31, 2018 from $14.1 million during the same period in 2017. The increase was a result of an increase of $162.9 million in average interest-earning assets due to an increase in the average loan portfolio of $108.0 million and an increase of twenty-six basis points in the average interest rate on average interest-earning assets for the quarter ended March 31, 2018 compared to the same period in 2017.

Interest Expense. Interest expense increased $768,000, or 32.1%, to $3.2 million during the three months ended March 31, 2018 compared to the same period in 2017. The primary reason for this increase was an increase of $104.2 million in average interest-bearing liabilities. This was due to an increase in average interest-bearing deposits of $99.2 million and an increase in average borrowings of $5.0 million. In addition, the average rate paid for interest-bearing liabilities increased by seventeen basis points for the three months ended March 31, 2018 compared to the same period in 2017.

Net Interest Income and Net Interest Margin. Net interest income before the provision for loan losses increased $1.9 million for the quarter ended March 31, 2018 compared to the same period in 2017. The increase in net interest income was primarily a result of an increase of $162.9 million in average interest earning assets, due to an increase of $108.0 million in average loans. This increase was also aided by a fourteen basis point increase in net interest margin to 3.35%, while the tax equivalent margin increased ten basis points. The increase in the margin was the result of the Universal acquisition, as well as, average interest earning assets, primarily loans, repricing upward faster than average interest bearing liabilities due to increases in the federal funds rate. The increase due to fed funds rate changes primarily impacted loans due to adjustable rate loans repriced as most deposits were not impacted by the increase in fed funds rate. For more information on our asset/liability management especially as it relates to interest rate risk, see “Item 7A - Quantitative and Qualitative Disclosures About Market Risk” in the Form 10-K for the year ended December 31, 2017.

Provision for Loan Losses. Provision for loan losses in the first quarter of 2018 was $450,000 compared to $200,000 during last year’s comparable period. The increase was due to management’s ongoing evaluation of the adequacy of the allowance for loan losses, which was partially attributable to an increase in net charge offs to $300,000, or 0.09% of total average loans on an annualized basis, in the first quarter of 2018 compared to net charge offs of $200,000, or 0.07% of total average loans on an annualized basis, in the first quarter of 2017.

Non-Interest Income. Non-interest income for the first quarter of 2018 was $4.4 million, an increase of $311,000 compared to the first quarter of 2017.

	Three Months Ended March 31,					Amount			Percent
	2018			2017		Change			Change
Service fee income	$	1,564		$	1,400	$	164			11.71	%
Net realized gain on sale of securities		154			129		25			19.38
Commissions		1,262			1,196		66			5.52
Net gains on sales of loans		635			770		(135	)		(17.53	)
Net servicing fees		150			101		49			48.51
Increase in cash surrender value of life insurance		289			272		17			6.25
Gain (loss) on sale of other real estate and repossessed assets		(68	)		54		(122	)		(225.93	)
Other income		449			202		247			122.28
Total	$	4,435		$	4,124	$	311			7.54	%

Increases in non-interest income included an increase of $164,000 in service fee income on deposit accounts primarily due to the acquisition along with increases in interchange fee income. An increase in other income was a result of $326,000 of death benefits received on bank-owned life insurance policies. This increase was partially offset by a $135,000 decrease in net gain on loan sales due to slower mortgage loan production and a $122,000 increase in losses on sale of repossessed assets, due to losses on one former commercial relationship.

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Non-Interest Expense. Non-interest expenses increased $1.6 million, to $13.0 million, for the first quarter of 2018. 

	Three Months Ended March 31,				Amount			Percent
	2018		2017		Change			Change
Salaries and employee benefits	$	7,289	$	6,726	$	563			8.37	%
Net occupancy expenses		897		809		88			10.88
Equipment expenses		556		427		129			30.21
Data processing fees		593		554		39			7.04
ATM and debit card expense		471		418		53			12.68
Deposit insurance		257		213		44			20.66
Professional fees		782		396		386			97.47
Advertising and promotion		360		312		48			15.38
Software subscriptions and maintenance		594		569		25			4.39
Other real estate and repossessed assets		45		47		(2	)		(4.26	)
Other expenses		1,133		935		198			21.18
Total	$	12,977	$	11,406	$	1,571			13.77	%

Increases in non-interest expense were primarily due to the acquisition of Universal in the first quarter of 2018. One-time merger related expenses, primarily in professional fees and other expenses, were $605,000 in the first quarter of 2018 with no similar activity in the same period of 2017. Salaries and employee benefits increased approximately $450,000 related to the Universal acquisition.

Income Tax Expense. The effective tax rate for the first quarter of 2018 was 12.7% compared to 24.2% in the same quarter of 2017. The decrease was due to the reduction of the corporate tax rate to 21% and an increase in tax free income partially due to an increase in holdings of tax free municipal securities.

Reconciliation of Non-GAAP Financial Measures

This report on Form 10-Q contains financial information determined by methods other than in accordance with U.S. GAAP. Non-GAAP financial measures 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 table on the following page.

38

	At and for the Three Months Ended
	March 31,			December 31,			March 31,
	2018			2017			2017
Total Stockholders' Equity (GAAP)	$	191,062		$	150,282		$	142,598
Less: Intangible Assets		28,378			1,927			2,107
Tangible common equity (non-GAAP)	$	162,684		$	148,355		$	140,491
Total assets (GAAP)	$	1,996,105		$	1,588,932		$	1,551,421
Less: Intangible Assets		28,378			1,927			2,107
Tangible assets (non-GAAP)	$	1,967,727		$	1,587,005		$	1,549,314
Tangible common equity to tangible assets (non-GAAP)		8.27	%		9.35	%		9.07	%
Book value per common share (GAAP)	$	22.28		$	20.34		$	19.42
Less: Effect of Intangible Assets		3.31			0.26			0.29
Tangible book value per common share (non-GAAP)	$	18.97		$	20.08		$	19.13
Return on average stockholders' equity (GAAP)		9.81	%		3.84	%		9.09	%
Add: Effect of Intangible Assets		0.72			0.05			0.14
Return on average tangible common equity (non-GAAP)		10.53	%		3.89	%		9.23	%
Total tax free interest income (GAAP)
Loans receivable	$	100		$	104		$	107
Investment securities		944			743			647
Total tax free interest income	$	1,044		$	847		$	754
Total tax free interest income, gross (tax rates at 21% beginning 2018 or at 34% prior to 2018)	$	1,322		$	1,283		$	1,142
Net interest margin (GAAP)
Net interest income (GAAP)	$	13,584		$	12,193		$	11,713
Add: Tax effect tax free interest income at 21% tax rate beginning 2018 or at 34% tax rate prior to 2018		278			436			388
Net interest income (non-GAAP)		13,862			12,629			12,101
Divided by: Average interest-earning assets		1,620,871			1,489,596			1,457,840
Net interest margin, tax equivalent		3.42	%		3.39	%		3.32	%
Ratio Summary:
Return on average equity (ROE)		9.81	%		3.84	%		9.09	%
Return on average tangible common equity		10.53	%		3.89	%		9.23	%
Return on average assets (ROA)		0.93	%		0.37	%		0.82	%
Tangible common equity to tangible assets		8.27	%		9.35	%		9.07	%
Net interest margin, tax equivalent		3.42	%		3.39	%		3.32	%

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.

39

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 March 31, 2018, our ratio was 22.0%. The Company is currently in excess of the minimum liquidity ratio set by the Board due to a larger investment portfolio. Management continues to seek to utilize liquidity off of the investment portfolio to fund loan growth over the next few years as demand for loans increases. Excess liquidity is generally invested in short-term investments, such as overnight deposits and federal funds. On a longer term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed securities. The Bank uses its sources of funds primarily to meet its ongoing commitments, pay maturing deposits, fund deposit withdrawals and fund loan commitments.

We hold cash and investments that qualify as liquid assets to maintain adequate liquidity to ensure safe and sound operation and meet demands for funds (particularly withdrawals of deposits). At March 31, 2018, on a consolidated basis, the Company had $358.8 million in cash and investment securities available for sale and $3.7 million in loans held for sale generally available for its cash needs. We can also generate funds from borrowings, primarily FHLB advances, portfolio loans, and, to a lesser degree, third party loans. At March 31, 2018, the Bank had the ability to borrow an additional $48.6 million in FHLB advances. In addition, we have historically sold 15- and 30-year, fixed-rate mortgage loans in the secondary market in order to reduce interest rate risk and to create another source of liquidity. The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its own operating expenses, 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 March 31, 2018, the Company, on an unconsolidated basis, had $2.7 million in cash, interest-bearing deposits and liquid investments generally available for its cash needs.

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

We use our sources of funds primarily to meet ongoing commitments, pay maturing deposits and fund withdrawals, and to fund loan commitments. At March 31, 2018, the approved outstanding loan commitments, including unused lines of credit, amounted to $268.3 million. Certificates of deposit scheduled to mature in one year or less as of March 31, 2018, totaled $164.1 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.

40

Off-Balance Sheet Activities

In the normal course of operations, the Bank engages in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. We also have off-balance sheet obligations to repay borrowings and deposits. For the quarter ended March 31, 2018, 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 March 31, 2018, the Bank had $137.4 million in commitments to make loans, $10.7 million in undisbursed portions of closed loans, $117.0 million in unused lines of credit and $3.2 million in standby letters of credit. In addition, on a consolidated basis, at March 31, 2018, the Company had $248.7 million in outstanding borrowings, of which $72.6 million is due in the next twelve months.  

Capital Resources

The Bank is subject to minimum capital requirements imposed by the FDIC. See ‘Item 1 - Business- How We Are Regulated - Regulatory Capital Requirements’ of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The FDIC may require the Bank to have additional capital above the specific regulatory levels if it believes the Bank is subject to increased risk due to asset problems, high interest rate risk and other risks. The Company is subject to minimum capital requirements imposed by the FRB, which are substantially similar to those imposed on the Bank, including guidelines for bank holding companies to be considered well-capitalized.

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

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

Implementation of the deductions and other adjustments to CET1 began on January 1, 2015, and will phase in over a four-year period (beginning at 40% on January 1, 2015, and an additional 20% per year thereafter). Under the new rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625% level and will continue to phase in over a four-year period (increasing by that amount on each subsequent January 1 until it reaches 2.5% on January 1, 2019). As of March 31, 2018, the Bank and Company exceeded the minimum buffer requirement.

The Company’s and Bank’s actual capital amounts and ratios as of March 31, 2018, are presented in the table below.

	Actual Capital Levels					Minimum Regulatory Capital Levels					Minimum Required To be Considered Well- Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Leverage Capital Level(1):
MutualFirst Consolidated	$	169,937		8.7	%	$	78,161		4.0	%		N/A		N/A
MutualBank		172,057		8.7			79,279		4.0		$	99,099		5.0	%
Common Equity Tier 1 Capital Level (2) :
MutualFirst Consolidated	$	161,689		10.9	%	$	66,640		4.5	%		N/A		N/A
MutualBank		172,057		11.6			66,668		4.5		$	96,298		6.5	%
Tier 1 Risk-Based Capital Level (3) :
MutualFirst Consolidated	$	169,937		11.5	%	$	88,853		6.0	%		N/A		N/A
MutualBank		172,057		11.6			88,890		6.0		$	118,520		8.0	%
Total Risk-Based Capital Level (4) :
MutualFirst Consolidated	$	182,474		12.3	%	$	118,471		8.0	%		N/A		N/A
MutualBank		184,594		12.5			118,520		8.0		$	148,150		10.0	%

⁽¹⁾ Tier 1 Capital to Total Average Assets for Leverage Ratio of $2.0 billion for the Bank and Company at March 31, 2018.

⁽²⁾ Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.5 billion for the Bank and Company at March 31, 2018.

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

⁽⁴⁾ Total Capital to Risk-Weighted Assets.

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Impact of Inflation

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

Item 3 Quantitative and Qualitative Disclosures About Market Risk

Information about the Company’s asset and liability management and market and interest-rate risks is included in Item 7A of the Form 10-K for the year ended December 31, 2017, filed with the SEC on March 15, 2018.

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.

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

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

· originate shorter-duration consumer loans,

· manage our deposits to establish stable deposit relationships,

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

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

Depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Asset and Liability Management Committee may increase our interest rate risk position somewhat in order to maintain our net interest margin and improve earnings. We will continue to increase our emphasis on the origination of relatively short-term and/or adjustable rate loans. In addition, in an effort to avoid an increase in the percentage of long-term, fixed-rate loans in our portfolio, during the first three months of 2018 we sold in the secondary market $20.0 million of primarily fixed rate, one- to four-family mortgage loans with a term to maturity of 15 years or greater.

42

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 March 31, 2018.

	Percentage Change in
	Net Interest Income			NPV
Rate Shock:
Up 400 basis points		(12.9	)%		(23.0	)%
Up 300 basis points		(9.2	)%		(16.1	)%
Up 200 basis points		(5.8	)%		(9.7	)%
Up 100 basis points		(2.7	)%		(3.9	)%
Down 100 basis points		(3.6	)%		(7.9	)%

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		(5.0	)%		(19.8	)%
Up 300 basis points		(3.6	)%		(13.9	)%
Up 200 basis points		(2.3	)%		(8.3	)%
Up 100 basis points		(1.1	)%		(3.3	)%
Down 100 basis points		(3.6	)%		(7.9	)%

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and (as defined in sec Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) that is designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate. An evaluation of the Company’s disclosure controls and procedures as of March 31, 2018, 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 March 31, 2018, 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.

43

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 March 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 1A.  Risk Factors

There are no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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

None.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.

44

 Item 6. Exhibits.

Regulation S-K Exhibit Number	Document
2.1	Agreement and Plan of Merger, dated as of October 4, 2017, by and among the Registrant and Universal Bancorp (included as Appendix A to the accompanying proxy statement-prospectus and incorporated herein by reference)
3.1	Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 filed with the SEC on September 16, 1999 (No. 333-87239)).
3.1a	Articles Supplementary to the Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on July 15, 2008 (File No. 000-27905))
3.2	Amended and Restated Bylaws of the Registrant (incorporated herein by reference to Exhibit 3(ii) to the Registrant’s Current Report on Form 8-K filed with the SEC on February 27, 2015 (File No. 000-27905))
4.1	Certificate of Registrant’s common stock (incorporated herein by reference to Exhibit 4.0 to the Registrant’s Registration Statement on Form S-1 filed with the SEC on September 16, 1999 (No. 333-87239))
10.1	Amended and Restated Employment Agreement between the Registrant, MutualBank and David W. Heeter (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 000-27905))
10.2	Amended and Restated Employment Agreement between the Registrant, MutualBank and Patrick D. Botts (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 000-27905))
10.3	Amended and Restated Employment Agreement between the Registrant, MutualBank and Christopher D. Cook (incorporated herein by reference to Exhibit 10.22 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 000-27905))
10.4	Amended and Restated Employment Agreement between the Registrant, MutualBank and Charles J. Viater (incorporated herein by reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 (File No. 000-27905))
10.5	Salary Continuation Agreement between the Registrant and Charles J. Viater (incorporated herein by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on March 23, 2009 (File No. 000-27905))
10.6	Form of Supplemental Retirement Plan Income Agreements for David W. Heeter and Patrick C. Botts (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 filed with the SEC on March 30, 2000 (File No. 000-27905))
10.7	Form of Director Shareholder Benefit Program Agreement, as amended, for Jerry D. McVicker (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000 filed with the SEC on April 2, 2001 (File No. 000-27905))
10.8	Form of Executive Deferred Compensation Plan Agreements for David W. Heeter and Patrick C. Botts (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999 filed with the SEC on March 30, 2000 (File No. 000-27905))
10.9	Registrant’s 2000 Stock Option and Incentive Plan (incorporated herein by reference to Appendix D to the joint proxy statement-prospectus included in the Registrant’s Registration Statement on Form S-4 filed with the SEC on October 19, 2000 (No. 333-46510))
10.10	Director Deferred Compensation Master Agreement (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on March 16, 2007 (File No. 000-27905))
10.11	Registrant’s 2008 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on March 23, 2009 (File No. 000-27905))
10.12	Form of Incentive Stock Option Agreement for 2008 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 18, 2010 (File No. 000-27905))
10.13	Form of Non-Qualified Stock Option Agreement for 2008 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 18, 2010 (File No. 000-27905))
10.14	Change in Control Agreement between the Registrant, MutualBank and Christopher L. Caldwell (incorporated herein by reference to Exhibit 10.14 to the Registrant’s Qarterly Report on Form 10-Q for the quarter ended September 30, 2017 (File No. 000-27905))
10.15	Change in Control Agreement between the Registrant, MutualBank and Sharon L. Ferguson (incorporated herein by reference to Exhibit 10.14 to the Registrant’s Qarterly Report on Form 10-Q for the quarter ended September 30, 2017 (File No. 000-27905))
11	Statement re computation of earnings per share (See Note 3 of the Notes to Unaudited Consolidated Condensed Statements included in this Form 10-Q)
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

45

101	Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended March 31, 2018, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Condensed Statements of Income, (iii) the Consolidated Condensed Statements of Comprehensive Income, (iv) the Consolidated Condensed Statement of Stockholders’ Equity, (v) the Consolidated Condensed Statements of Cash Flows and (vi) the Notes to Unaudited Consolidated Condensed Financial Statements.
	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema Document
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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

(c) Financial Statements Schedules - None 

46

SIGNATURES

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

Date:  May 9, 2018	By:	/s/David W. Heeter
		David W. Heeter
		President and Chief Executive Officer
Date:  May 9, 2018	By:	/s/Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and Chief Financial Officer

47

INDEX TO EXHIBITS

Number	Description
31.1	Rule 13(a)-14(a) Certification (Chief Executive Officer)
31.2	Rule 13(a)-14(a) Certification (Chief Financial Officer)
32	Section 1350 Certification
101	Financial statements from Quarterly Report on Form 10-Q of the Registrant for the quarter ended March 31, 2018, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Condensed Statements of Income, (iii) the Consolidated Condensed Statements of Comprehensive Income, (iv) the Consolidated Condensed Statements of Stockholders’ Equity, (v) the Consolidated Condensed Statements of Cash Flows and (vi) the Notes to Unaudited Consolidated Condensed Financial Statements.

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

48

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, David W. Heeter, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: May 9, 2018	By:	/s/ David W. Heeter
		David W. Heeter
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Christopher D. Cook, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: May 9, 2018	By:	/s/ Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and    Chief Financial Officer
		(Principal Financial and Accounting Officer)

EX-32

EXHIBIT 32

SECTION 1350 CERTIFICATION

Each of the undersigned hereby certifies in his capacity as an officer of MutualFirst Financial, Inc. (the “Registrant”) that the Quarterly Report of the Registrant on Form 10-Q for the period ended March 31, 2018 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the consolidated financial condition of the Registrant at the end of such period and the results of operations of the Registrant for such period.

Date:   May 9, 2018	By:	/s/ David W. Heeter
		David W. Heeter
		President and Chief Executive Officer
Date:   May 9, 2018	By:	/s/ Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and   Chief Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2018	May 09, 2018
Document Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q1
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		8,574,924

XML

Consolidated Condensed Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Assets
Cash and due from banks	$ 11,681	$ 8,763
Interest-bearing demand deposits	29,388	18,578
Cash and cash equivalents	41,069	27,341
Interest-bearing time deposits	4,627	1,853
Investment securities available for sale (carried at fair value)	354,145	277,378
Loans held for sale	3,686	4,577
Loans, net of allowance for loan losses of $12,537 and $12,387, at March 31, 2018 and December 31, 2017, respectively	1,436,889	1,167,758
Premises and equipment, net	26,208	21,539
Federal Home Loan Bank stock	12,820	11,183
Deferred tax asset, net	10,665	7,530
Cash value of life insurance	59,209	52,707
Goodwill	23,869	1,800
Core deposit intangibles	4,509	127
Other real estate owned and repossessed assets	1,753	733
Other assets	16,656	14,406
Total assets	1,996,105	1,588,932
Deposits
Noninterest-bearing	288,996	194,134
Interest-bearing	1,251,456	1,007,900
Total deposits	1,540,452	1,202,034
Federal Home Loan Bank advances	230,546	217,163
Other borrowings	18,110	4,232
Other liabilities	15,935	15,221
Total liabilities	1,805,043	1,438,650
Commitments and Contingencies
Stockholders' Equity
Common stock, $.01 par value Authorized - 20,000,000 shares Issued and outstanding - 8,574,924 and 7,389,394 shares at March 31, 2018 and December 31, 2017, respectively	86	74
Additional paid-in capital	117,630	75,319
Retained earnings	76,971	74,508
Accumulated other comprehensive income (loss)	(3,625)	381
Total stockholders' equity	191,062	150,282
Total liabilities and stockholders' equity	$ 1,996,105	$ 1,588,932

XML

Consolidated Condensed Balance Sheets (Parenthetical) - USD ($)	Mar. 31, 2018	Dec. 31, 2017
Statement Of Financial Position [Abstract]
Allowance for loan losses	$ 12,537,000	$ 12,387,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, Authorized	20,000,000	20,000,000
Common stock, shares Issued	8,574,924	7,389,394
Common stock, shares outstanding	8,574,924	7,389,394

XML

Consolidated Condensed Statements of Income - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Interest and Dividend Income
Loans receivable	$ 14,325,000	$ 12,249,000
Investment securities	2,166,000	1,720,000
Federal Home Loan Bank stock	190,000	115,000
Deposits with financial institutions	67,000	25,000
Total interest and dividend income	16,748,000	14,109,000
Interest Expense
Deposits	2,107,000	1,465,000
Federal Home Loan Bank advances	962,000	886,000
Other	95,000	45,000
Total interest expense	3,164,000	2,396,000
Net Interest Income	13,584,000	11,713,000
Provision for loan losses	450,000	200,000
Net Interest Income After Provision for Loan Losses	13,134,000	11,513,000
Non-interest Income
Service fee income	1,564,000	1,400,000
Net realized gain on sales of available for sale securities	154,000	129,000
Commissions	1,262,000	1,196,000
Net gains on sales of loans	635,000	770,000
Net servicing fees	150,000	101,000
Increase in cash value of life insurance	289,000	272,000
Gain (loss) on sale of other real estate and repossessed assets	(68,000)	54,000
Other income	449,000	202,000
Total non-interest income	4,435,000	4,124,000
Non-interest Expenses
Salaries and employee benefits	7,289,000	6,726,000
Net occupancy expenses	897,000	809,000
Equipment expenses	556,000	427,000
Data processing fees	593,000	554,000
ATM and debit card expenses	471,000	418,000
Deposit insurance	257,000	213,000
Professional fees	782,000	396,000
Advertising and promotion	360,000	312,000
Software subscriptions and maintenance	594,000	569,000
Other real estate and repossessed assets	45,000	47,000
Other expenses	1,133,000	935,000
Total non-interest expenses	12,977,000	11,406,000
Income Before Income Tax	4,592,000	4,231,000
Income tax expense	585,000	1,025,000
Net Income	$ 4,007,000	$ 3,206,000
Earnings Per Common Share
Basic	$ 0.51	$ 0.44
Diluted	0.50	0.43
Dividends Per Common Share	$ 0.18	$ 0.16

XML

Consolidated Condensed Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 4,007	$ 3,206
Other Comprehensive Income (Loss)
Net unrealized holding gain (loss) on securities available for sale	(4,931)	715
Reclassification adjustment for realized gains included in net income	(154)	(129)
Other comprehensive income, before tax, total	(5,085)	586
Income tax (benefit) expense related to other comprehensive income	1,079	(195)
Other comprehensive income (loss), net of tax	(4,006)	391
Comprehensive Income	$ 1	$ 3,597

XML

Consolidated Condensed Statement of Stockholders' Equity - 3 months ended Mar. 31, 2018 - USD ($) $ in Thousands	Common Stock	Additional paid-in capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Beginning Balance at Dec. 31, 2017	$ 74	$ 75,319	$ 74,508	$ 381	$ 150,282
Net income			4,007		4,007
Other comprehensive income, net of taxes				(4,006)	(4,006)
Cash dividends, common stock			(1,544)		(1,544)
Issuance of commons stock related to acquisition	12	42,311			42,323
Ending Balance at Mar. 31, 2018	$ 86	$ 117,630	$ 76,971	$ (3,625)	$ 191,062

XML

Consolidated Condensed Statement of Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Consolidated Condensed Statement of Stockholders' Equity [Abstract]
Cash dividends, common stock, per share	$ 0.18	$ 0.16

XML

Consolidated Condensed Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Operating Activities
Net income	$ 4,007	$ 3,206
Items not requiring cash
Provision for loan losses	450	200
Depreciation and amortization	1,269	1,125
Increase in cash value of life insurance	(289)	(272)
Loans originated for sale	(19,259)	(22,548)
Proceeds from sales of loans held for sale	20,729	22,243
Net gain on sale of loans	(635)	(770)
Net gain on sale of securities, available for sale	(154)	(129)
Gain on bank owned life insurance	(326)
(Gain) loss on sale of other real estate and repossessed assets	68	(54)
Change in
Interest receivable and other assets	927	1,441
Interest payable and other liabilities	(541)	(775)
Other adjustments	(39)	15
Net cash provided by operating activities	6,207	3,682
Investing Activities
Net change in interest-bearing time deposits	5,973	(912)
Purchases of securities
Available for sale	(37,305)	(15,934)
Proceeds from maturities and paydowns of securities
Available for sale	6,332	6,730
Proceeds from sales of securities, available for sale	36,811	5,681
Purchase of Federal Home Loan Bank stock		(258)
Net change in loans	(17,736)	1,257
Net cash and cash equivalents paid in acquisition	(7,673)
Purchases of premises and equipment	(390)	(201)
Proceeds from real estate owned sales	366	503
Proceeds from sale of real estate held for investment		502
Proceeds from bank owned life insurance	1,669
Proceeds from sale of premises and equipment	67
Net cash used in investing activities	(11,886)	(2,632)
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits	19,727	16,525
Certificates of deposit	3,462	1,016
Proceeds from FHLB advances	112,600	77,500
Repayments of FHLB advances	(124,700)	(99,900)
Proceeds from other borrowings	10,000	290
Repayments other borrowings	(138)
Cash dividends	(1,544)	(1,176)
Stock options exercised		139
Net cash provided by (used in) financing activities	19,407	(5,606)
Net Change in Cash and Cash Equivalents	13,728	(4,556)
Cash and Cash Equivalents, Beginning of Period	27,341	26,860
Cash and Cash Equivalents, End of Period	41,069	22,304
Additional Cash Flows Information
Interest paid	3,026	2,292
Transfers from loans to foreclosed assets	445	273
Mortgage servicing rights capitalized	56	61
Purchase of securities, due to broker		$ 1,052
Fair value of assets acquired	406,928
Cash paid in acquisition	(18,999)
Common common stock issued	(42,323)
Liabilities Assumed	$ 345,606

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2018

Basis of Presentation [Abstract]

Basis of Presentation

Note 1:Basis of Presentation

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

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on March 15, 2018.

The interim consolidated condensed financial statements at and for the three months ended March 31, 2018 and 2017, have not been audited by independent accountants, but in the opinion of management, reflect all adjustments necessary to present fairly the financial position, results of operations and cash flows for such periods. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

The Consolidated Condensed Balance Sheet of the Company as of December 31, 2017 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

XML

Acquisitions

3 Months Ended

Mar. 31, 2018

Acquisitiion [Abstract]

Acquisitiion

Note 2:Acquisitions

On February 28, 2018, the Company completed the 100% acquisition of Universal Bancorp (“Universal”). Universal and BloomBank, a wholly-owned subsidiary of Universal, merged with and into the Company and the Bank, respectively. BloomBank was headquartered in Bloomfield, Indiana and had 13 retail financial center offices serving counties in central and southern Indiana. Under terms of the merger agreement, shareholders of Universal received fixed consideration of 15.6 shares of MutualFirst common stock and $250.00 in cash for each share of Universal common stock. The Company issued approximately 1.2 million shares of common stock, which was valued at approximately $42.3 million. Based upon the February 28, 2018 closing price of $35.70 per share of MutualFirst common stock, the transaction has an implied valuation of approximately $61.3 million. The Company incurred approximately $605,000 in expenses related to the acquisition in the first three months of 2018. These expenses are classified in the non-interest expense section of the income statement, primarily in professional fees and other expenses. As a result of the acquisition, the Company was able to increase both its deposit and loan base and expects to reduce costs through economies of scale. Goodwill resulted from this transaction due to the expected synergies and economies of scale.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired, liabilities assumed and related deferred tax impacts, which are based on assumptions that are subject to change as management continues to evaluate, the purchase price for the Universal acquisition is detailed in the following table. If prior to the end of the one-year measurement period for finalizing the purchase price allocation, information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be recorded in the reporting period in which the adjustment amounts are determined. The measurement period adjustments will be calculated as if the accounting had been completed as of the acquisition date.

Assets			Liabilities
Cash and cash equivalents	$	11,326	Deposits
Interest-bearing time deposits		8,747	Non-interest bearing	$	81,061
Investment securities, available for sale		87,817	NOW accounts		66,372
			Savings and money market		85,690
Loans			Certificated of deposits		82,107
Commercial		203,621	Total deposits		315,230
Residential mortgage		36,410
Consumer		12,532	Borrowings		25,463
Total loans		252,563	Interest payable		81
			Subordinated debt		4,000
Premises and equipment, net		4,799	Other liabilities		832
Federal Home Loan Bank stock		1,637	Total liabilities assumed	$	345,606
Deferred tax asset, net		2,056
Cash value of life insurance		7,556
Goodwill		22,069
Core deposit intangible		4,545
Interest receivable		1,259
Other real estate owned and repossessed assets		1,009
Other assets		1,545
Total assets purchased	$	406,928
Common shares issued	$	42,323
Cash paid		18,999
Total purchase price	$	61,322

Of the total purchase price, $4.5 million has been allocated to a core deposit intangible that will be amortized over its estimated life of 15 years. Of the remaining purchase price, $22.1 million has been allocated to goodwill, which is not deductible for tax purposes. Loans acquired had a fair value of $252.6 million. The contractual principal at the acquisition date was $257.2 million and the estimate of the contractual cash flows not expected to be collected is $4.6 million.

Pro Forma Financial Information

The results of operations of Universal Bancorp have been included in the Corporation’s consolidated financial statements since the acquisition date. The following schedule includes pro forma results for the three months ended March 31, 2018 and 2017, as if the Universal acquisition occurred as of the beginning of the reporting periods presented.

	Three Months Ended March 31,
	2018		2017
Summary of Operations
Net interest income	$	15,875	$	15,621
Provision for loan losses		(450)		(200)
Net interest income after provision	$	15,425	$	15,421
Non-interest income		4,713		4,730
Non-interest expense		(18,795)		(14,970)
Income before income taxes	$	1,343	$	5,181
Income tax benefit (expense)		208		(1,212)
Net income to common shareholders	$	1,551	$	3,969
Basic earnings per share	$	0.18	$	0.47
Diluted earnings per share	$	0.18	$	0.46

The pro-forma information for March 31, 2018 includes operating revenue from Universal of $1.4 million since the date of acquisition. Earnings of Universal since the acquisition date, net of tax and non-recurring expenses related to the acquisition were $1.2 million as of March 31, 2018. The pro forma information is presented for information purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

XML

Earnings Per Share

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

Earnings Per Share

Note 3:Earnings Per Share

Earnings per share were computed as follows:

	Three Months Ended March 31,
	2018					2017
		Net Income	Weighted- Average Shares		Per-Share Amount		Net Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income	$	4,007	7,810,916	$	0.51	$	3,206	7,332,455	$	0.44
Effect of Dilutive Securities
Stock options			154,977					148,026
Diluted Earnings Per Share
Net income available and assumed conversions	$	4,007	7,965,893	$	0.50	$	3,206	7,480,481	$	0.43

As of March 31, 2018 and 2017, the exercise price for all options was lower than the average market price of the common shares. 

XML

Impact of Accounting Pronouncements

3 Months Ended

Mar. 31, 2018

Impact of Accounting Pronouncements [Abstract]

Impact of Accounting Pronouncements

Note 4:Impact of Accounting Pronouncements

In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-05, Income Taxes (Topic 740) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (“SAB”) No. 118. The ASU amends the Accounting Standards Codification to incorporate various SEC paragraphs pursuant to the issuance of SAB 118. SAB 118 addresses the application of generally accepted accounting principles in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. The Company has assessed ASU 2018-05 and does not expect it to have a material impact on the Company’s accounting and disclosures.

In February 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.  The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company has assessed ASU 2018-02 and does not expect it to have a material impact on the Company’s accounting and disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350)-Simplifying the Test for Goodwill Impairment. These amendments eliminate Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. The Company has assessed ASU 2017-04 and does not expect it to have a material impact on its accounting and disclosures.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805)-Clarifying the Definition of a Business. ASU 2017-01 provides amendments to clarify the definition of a business and affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and should be applied prospectively as of the beginning of the period of adoption. The Company adopted this ASU in the first quarter of 2018. Adoption of this ASU did not have a significant effect on the Company’s consolidated financial statements.

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. The Company adopted this ASU in the first quarter of 2018. Adoption of this ASU did not have a significant effect on the Company’s consolidated financial statements.

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 financial assets measured at amortized cost (primarily loans) 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. generally accepted accounting principles (“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 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. The Company adopted ASU 2016-01 on January 1, 2018 and it did not have a material effect on the Company’s consolidated financial statements.

In March 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU affects entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 for public entities to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company’s revenue is comprised of interest income on financial assets, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. We have completed our evaluation of the impact of ASU 2014-09 on components of our non-interest income including trust and investment management fees, insurance commissions and fees and have not found any significant changes to our methodology of recognizing revenue. As required by the ASU, the Company adopted the standard on January 1, 2018 and it did not have a material effect on the Company’s consolidated financial statements. See Item 2 of this Form 10-Q “Critical Accounting Policies” for additional information.

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Investment Securities

3 Months Ended

Mar. 31, 2018

Investment Securities [Abstract]

Investment Securities

Note 5: Investment Securities

The amortized costs and approximate fair values, together with gross unrealized gains and losses on securities, are in the tables below.  All mortgage-backed securities and collateralized mortgage obligations held as of March 31, 2018 and December 31, 2017 were guaranteed by government sponsored entities, government corporations or federal agencies.

	March 31, 2018
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale Securities
Mortgage-backed securities	$	96,027	$	250	$	(2,014)	$	94,263
Collateralized mortgage obligations		111,800		95		(2,278)		109,617
Municipal obligations		137,909		2,141		(1,572)		138,478
Corporate obligations		12,966		22		(1,201)		11,787
Total investment securities	$	358,702	$	2,508	$	(7,065)	$	354,145

	December 31, 2017
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale Securities
Mortgage-backed securities	$	68,335	$	225	$	(762)	$	67,798
Collateralized mortgage obligations		88,488		58		(1,296)		87,250
Municipal obligations		107,060		3,709		(274)		110,495
Corporate obligations		12,966		69		(1,200)		11,835
Total investment securities	$	276,849	$	4,061	$	(3,532)	$	277,378

The amortized cost and fair value of securities available for sale at March 31, 2018, 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 of Securities	Amortized Cost		Fair Value
Security obligations due
Within one year	$	662	$	674
One to five years		10,483		10,515
Five to ten years		29,725		30,510
After ten years		110,005		108,566
		150,875		150,265
Mortgage-backed securities		96,027		94,263
Collateralized mortgage obligations		111,800		109,617
Totals	$	358,702	$	354,145

Proceeds from sales of securities available for sale for the three months ended March 31, 2018and 2017 were $36.8 million and $5.7 million, respectively. Gross gains were recognized on the sales for the three months ended March 31, 2018 and 2017 of $154,000 and $129,000, respectively. There were no gross losses recognized on the sales of securities for the three months ended March 31, 2018 or 2017.  

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 March 31, 2018 and December 31, 2017 was $206.0 million and $142.9million, respectively, which were approximately 58.2% and 51.5%, respectively, of the Company’s investment portfolio at those dates.

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

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

During the first three months of 2018 and 2017, the Bank determined that its security holdings had no other-than-temporary impairment. 

The following tables show the gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2018 and December 31, 2017:

	March 31, 2018
	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale Securities
Mortgage-backed securities	$	33,554	$	(815)	$	26,218	$	(1,199)	$	59,772	$	(2,014)
Collateralized mortgage obligations		64,859		(1,034)		27,433		(1,244)		92,292		(2,278)
Municipal obligations		41,553		(1,005)		9,671		(567)		51,224		(1,572)
Corporate obligations		-		-		2,722		(1,201)		2,722		(1,201)
Total temporarily impaired securities	$	139,966	$	(2,854)	$	66,044	$	(4,211)	$	206,010	$	(7,065)

	December 31, 2017
	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale Securities
Mortgage-backed securities	$	21,975	$	(127)	$	27,675	$	(635)	$	49,650	$	(762)
Collateralized mortgage obligations		47,153		(400)		28,887		(896)	$	76,040	$	(1,296)
Municipal obligations		4,479		(64)		10,041		(210)		14,520		(274)
Corporate obligations		-		-		2,722		(1,200)		2,722		(1,200)
Total temporarily impaired securities	$	73,607	$	(591)	$	69,325	$	(2,941)	$	142,932	$	(3,532)

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

The unrealized losses on the Company’s investment in MBSs and CMOs were caused by interest rate changes 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 any of these investments to be other-than-temporarily impaired at March 31, 2018.

Municipal Obligations

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 par value of the investments.  The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments.  The Company does not consider any of these investment securities to be other-than-temporarily impaired at March 31, 2018.

Corporate Obligations

The Company’s unrealized losses on investments in corporate obligations primarily relates to two investments in pooled trust preferred securities.  The unrealized losses were primarily caused by (1) a decrease in performance and regulatory capital resulting from exposure to subprime mortgages and (2) a sector downgrade by industry analysts.

Other-Than-Temporary Impairment (OTTI)

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

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

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

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 little demand for pooled trust preferred securities; however, the Company looks principally to market yields for stand-alone trust preferred securities issued by banks, thrifts and insurance companies for which there is an active and liquid market.  The next step is to make a series of adjustments to reflect the differences that exist between these products (both credit and structural) and, most importantly, to reflect idiosyncratic credit performance differences (both actual and projected) between these products and the underlying collateral in the specific trust preferred security.  Importantly, as part of the analysis described above, MutualFirst considers the fact that structured instruments frequently exhibit leverage not present in stand-alone instruments, and makes adjustments as necessary to reflect this additional risk.

Pooled Trust Preferred Securities.  The Bank has invested in pooled trust preferred securities.  At March 31, 2018, the current book value of our pooled trust preferred securities was $3.9million.  The original par value of these securities was $4.0 million.All pooled trust preferred securities owned were performing as agreed in the first three months of 2018.  As of May 2017, current Moody’s rated these bonds as Aa3 for Alesco Preferred Funding IX and Ba2 for U.S. Capital Funding I. 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 pooled trust preferred securities as of March 31, 2018:

Deal Name	Class	Original Par		Book Value		Fair Value		Unrealized Loss		Realized Losses 2018		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	Aa3	$	1,000	$	923	$	599	$	(323)	$	-	CCC-	45	48	2.85	%	8.23	%	53.61	%
U.S. Capital Funding I	B3		3,000		3,000		2,122		(878)		-	Caa1	26	30	5.92	%	5.92	%	12.29	%
		$	4,000	$	3,923	$	2,721	$	(1,201)	$	-

(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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Loans and Allowance

3 Months Ended

Mar. 31, 2018

Loans and Allowance [Abstract]

Loans and Allowance

Note 6: Loans and Allowance

Classes of loans at March 31, 2018 and December 31, 2017include:

	March 31,		December 31,
	2018		2017
Real estate
Commercial	$	490,885	$	318,684
Commercial construction and development		52,889		28,164
Consumer closed end first mortgage		476,422		444,243
Consumer open end and junior liens		75,942		69,477
Total real estate loans		1,096,138		860,568
Other loans
Consumer loans
Auto		22,110		19,640
Boat/RVs		175,747		169,238
Other		6,190		6,188
Commercial and industrial		152,276		131,079
Total other loans		356,323		326,145
Total loans		1,452,461		1,186,713
Undisbursed loans in process		(9,502)		(13,071)
Unamortized deferred loan costs, net		6,467		6,503
Allowance for loan losses		(12,537)		(12,387)
Net loans	$	1,436,889	$	1,167,758

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

Commercial

Real estate

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

Construction and Development

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

Commercial and Industrial

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

Consumer Real Estate and Other Consumer Loans

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

Nonaccrual Loans and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.  Loans are placed on non-accrual status when the loan is greater than 90 days past due, the borrower, in management’s opinion, may be unable to meet payment obligations as they become due or when required by regulatory provisions. 

All interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured and generally only after six months of satisfactory performance.

Nonaccrual loans, segregated by class of loans, as of March 31, 2018 and December 31, 2017 are as follows:

	March 31,		December 31,
	2018		2017
Real estate
Commercial	$	1,377	$	1,107
Commercial construction and development		-		-
Consumer closed end first mortgage		3,616		3,409
Consumer open end and junior liens		223		309
Consumer loans
Auto		11		22
Boat/RVs		367		198
Other		52		16
Commercial and industrial		182		159
Total nonaccrual loans	$	5,828	$	5,220

An age analysis of the Company’s past due loans, segregated by class of loans, as of March 31, 2018 and December 31, 2017 are as follows:

	March 31, 2018
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	2,263	$	3,407	$	905	$	6,575	$	484,310	$	490,885	$	-
Commercial construction and development		40		-		-		40		52,849		52,889		-
Consumer closed end first mortgage		5,583		1,462		3,004		10,049		466,373		476,422		22
Consumer open end and junior liens		295		101		211		607		75,335		75,942		10
Consumer loans
Auto		102		45		10		157		21,953		22,110		-
Boat/RVs		718		299		230		1,247		174,500		175,747		-
Other		132		9		57		198		5,992		6,190		5
Commercial and industrial		275		9		183		467		151,809		152,276		-
Total	$	9,408	$	5,332	$	4,600	$	19,340	$	1,433,121	$	1,452,461	$	37

	December 31, 2017
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	2,171	$	3,311	$	998	$	6,480	$	312,204	$	318,684	$	-
Commercial construction and development		-		-		-		-		28,164		28,164		-
Consumer closed end first mortgage		5,914		1,340		3,224		10,478		433,765		444,243		31
Consumer open end and junior liens		540		123		264		927		68,550		69,477		-
Consumer loans
Auto		114		24		1		139		19,501		19,640		-
Boat/RVs		1,613		338		103		2,054		167,184		169,238		-
Other		65		18		12		95		6,093		6,188		-
Commercial and industrial		276		10		159		445		130,634		131,079		-
Total	$	10,693	$	5,164	$	4,761	$	20,618	$	1,166,095	$	1,186,713	$	31

Impaired Loans

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

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

The following tables present impaired loans as of and for the three month periods ended March 31, 2018 and 2017 and as of and for the year ended December 31, 2017. 

	March 31, 2018
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	801	$	801	$	-	$	839	$	-
Commercial construction and development		668		668		-		684		7
Consumer closed end first mortgage		1,411		1,411		-		1,477		1
Commercial and industrial		152		152		-		212		-
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		214		1
Total
Real estate
Commercial	$	1,015	$	1,015	$	100	$	1,053	$	1
Commercial construction and development	$	668	$	668	$	-	$	684	$	7
Consumer closed end first mortgage	$	1,411	$	1,411	$	-	$	1,477	$	1
Commercial and industrial	$	152	$	152	$	-	$	212	$	-
Total	$	3,246	$	3,246	$	100	$	3,426	$	9

	March 31, 2017
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	813	$	813	$	-	$	739	$	-
Commercial construction and development		792		792		-		807		9
Consumer closed end first mortgage		1,850		1,850		-		1,859		-
Commercial and industrial		179		179		-		183		1
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		214		-
Total
Real estate
Commercial	$	1,027	$	1,027	$	100	$	953	$	-
Commercial construction and development	$	792	$	792	$	-	$	807	$	9
Consumer closed end first mortgage	$	1,850	$	1,850	$	-	$	1,859	$	-
Commercial and industrial	$	179	$	179	$	-	$	183	$	1
Total	$	3,848	$	3,848	$	100	$	3,802	$	10

	December 31, 2017
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	878	$	878	$	-	$	765	$	1
Commercial construction and development		700		700		-		762		33
Consumer closed end first mortgage		1,543		1,543		-		1,451		1
Consumer open end and junior liens						-
Commercial and industrial		272		342		-		216		5
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		214		-
Total
Real estate
Commercial	$	1,092	$	1,092	$	100	$	979	$	1
Commercial construction and development	$	700	$	700	$	-	$	762	$	33
Consumer closed end first mortgage	$	1,543	$	1,543	$	-	$	1,451	$	1
Consumer open end and junior liens	$	-	$	-	$	-	$	-	$	-
Commercial and industrial	$	272	$	342	$	-	$	216	$	5
Total	$	3,607	$	3,677	$	100	$	3,408	$	40

The following information presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of March 31, 2018.

Commercial Loan Grades

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

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

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

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

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

Retail Loan Grades

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

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

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

Special mention commercial real estate loans increased as management determined that a few credits had potential weaknesses deserving management’s close attention. All of these credits were performing as agreed as of March 31, 2018.

	March 31, 2018
		Commercial								Consumer
		Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial		$	472,398	$	10,996	$	7,474	$	17							$	490,885
Commercial construction and development			52,221		-		668		-								52,889
Consumer closed end first mortgage										$	470,769	$	-	$	5,653		476,422
Consumer open end and junior liens											75,590		-		352		75,942
Other loans
Consumer loans
Auto											22,085		-		25		22,110
Boat/RVs											175,358		-		389		175,747
Other											6,111		-		79		6,190
Commercial and industrial			139,761		5,665		6,850		-								152,276
		$	664,380	$	16,661	$	14,992	$	17	$	749,913	$	-	$	6,498	$	1,452,461

	December 31, 2017
		Commercial								Consumer
		Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial		$	309,451	$	4,219	$	4,996	$	18							$	318,684
Commercial construction and development			27,464		-		700		-								28,164
Consumer closed end first mortgage										$	439,075	$	-	$	5,168		444,243
Consumer open end and junior liens											69,130		-		347		69,477
Other loans
Consumer loans
Auto											19,616		-		24		19,640
Boat/RVs											169,036		-		202		169,238
Other											6,133		-		55		6,188
Commercial and industrial			120,211		5,784		5,084		-								131,079
		$	457,126	$	10,003	$	10,780	$	18	$	702,990	$	-	$	5,796	$	1,186,713

Allowance for Loan Losses.

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

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

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

The following table details activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2018 and 2017, respectively.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other segments.

	Three Months Ended March 31, 2018
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	7,704	$	1,761	$	2,922	$	12,387
Provision charged (credited) to expense		408		(49)		91		450
Losses charged off		(138)		(20)		(214)		(372)
Recoveries		-		8		64		72
Balance, end of period	$	7,974	$	1,700	$	2,863	$	12,537

	Three Months Ended March 31, 2017
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	7,358	$	2,303	$	2,721	$	12,382
Provision charged (credited) to expense		32		17		151		200
Losses charged off		-		(45)		(204)		(249)
Recoveries		7		4		38		49
Balance, end of period	$	7,397	$	2,279	$	2,706	$	12,382

The following tables provide a breakdown of the allowance for loan losses and loan portfolio balances by segment as of March 31, 2018 and 2017, and December 31, 2017.

	March 31, 2018
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,874		1,700		2,863		12,437
Loans acquired with deteriorated credit quality		-		-		-		-
Total allowance for loan losses	$	7,974	$	1,700	$	2,863	$	12,537
Loan balances
Individually evaluated for impairment	$	1,835	$	1,411	$	-	$	3,246
Collectively evaluated for impairment		693,903		475,011		279,989		1,448,903
Loans acquired with deteriorated credit quality		312		-		-		312
Gross loans	$	696,050	$	476,422	$	279,989	$	1,452,461

	March 31, 2017
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,297		2,279		2,706		12,282
Total allowance for loan losses	$	7,397	$	2,279	$	2,706	$	12,382
Loan balances
Individually evaluated for impairment	$	1,998	$	1,850	$	-	$	3,848
Collectively evaluated for impairment		454,481		473,497		239,561		1,167,539
Gross loans	$	456,479	$	475,347	$	239,561	$	1,171,387

	December 31, 2017
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,604		1,761		2,922		12,287
Total allowance for loan losses	$	7,704	$	1,761	$	2,922	$	12,387
Loan balances
Individually evaluated for impairment	$	2,064	$	1,543	$	-	$	3,607
Collectively evaluated for impairment		475,863		442,700		264,543		1,183,106
Gross loans	$	477,927	$	444,243	$	264,543	$	1,186,713

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

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

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

Troubled Debt Restructurings

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

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

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

At March 31, 2018, the Company had loans that were modified in troubled debt restructurings.  The modification of terms of such loans included one or a combination of the following:  an extension of maturity or a reduction of the stated interest rate.  

The following tables describe troubled debts restructured during the three month periods ended March 31, 2018 and 2017:

	Three Months Ended
	March 31, 2018					March 31, 2017
	No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Real estate
Commercial	3	$	138	$	140	-	$	-	$	-
Consumer closed end first mortgage	3		47		59	1		65		67
Consumer open end and junior liens	1		36		36	-		-		-
Commercial and industrial	1		61		61	1		72		72

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

Newly restructured loans by type for the three months ended March 31, 2018 and 2017 are as follows:

	Three Months Ended March 31, 2018
		Rate		Term		Combination		Total Modification
Real estate
Commercial	$	-	$	-	$	140	$	140
Consumer closed end first mortgage		-		-		59		59
Consumer open end and junior liens		-		36		-		36
Commercial and industrial		-		61		-		61

	Three Months Ended March 31, 2017
		Rate		Term		Combination		Total Modification
Real estate
Consumer closed end first mortgage	$	-	$	-	$	67	$	67
Commercial and industrial		-		72		-		72

There were no defaults on loans modified as troubled debt restructurings made in the three months ended March 31, 2018 and 2017. Defaults are defined as any loans that become 90 days past due.

+

At March 31, 2018, the Company had residential real estate held for sale as a result of foreclosure totaling $1.4 million and real estate in the process of foreclosure of $1.2 million. As of March 31, 2018, the Company also held $363,000 in other repossessed assets, such as autos, boats, RVs and horse trailers.

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Accounting for Certain Loans Acquired in a Transfer

3 Months Ended

Mar. 31, 2018

Accounting for Certain Loans Acquired in a Transfer [Abstract]

Accounting for Certain Loans Acquired in a Transfer

Note 7: Accounting for Certain Loans Acquired in a Transfer

The Company acquired loans in the acquisition of Universal and the transferred loans had evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. The Company acquired two loans with evidence of credit deterioration recorded at a fair value of $313,000.

The following table presents the carrying amounts of the acquired loans included in the balance sheet amounts of loans receivable as of March 31, 2018.

	March 31, 2018
Outstanding balance
Real estate
Commercial	$	161,334
Commercial construction and development		22,849
Consumer closed end first mortgage		37,774
Consumer open end and junior liens		9,318
Total real estate loans		231,275
Other loans
Consumer loans
Auto		2,150
Boat/RVs		173
Other		919
Commercial and industrial		22,690
Total other loans		25,932
Total loans	$	257,207
Carrying amount	$	252,989
Allowance		-
Carrying amount net of allowance	$	252,989

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Derivative Financial Instruments

3 Months Ended

Mar. 31, 2018

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 8: Derivative FinancialInstruments

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 March 31, 2018 and December 31, 2017 was approximately $18.1 million and $17.3 million, respectively.

The following table shows the amounts of derivative financial instruments at March 31, 2018 and December 31, 2017.

	Asset Derivatives
		Fair Value					Fair Value
	Balance Sheet	March 31,		December 31,		Balance Sheet	March 31,		December 31,
	Location	2018		2017		Location	2018		2017
Derivatives not designated as hedging instruments:
Interest rate contracts	Other assets	$	867	$	525	Other liabilities	$	867	$	525

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Accumulated Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2018

Accumulated Other Comprehensive Income (Loss) [Abstract]

Accumulated Other Comprehensive Income (Loss)

Note 9: Accumulated Other Comprehensive Income (Loss)

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

	March 31,		December 31,
	2018		2017
Net unrealized gain (loss) on securities available for sale	$	(4,556)	$	529
Net unrealized gain relating to defined benefit plan liability		10		10
		(4,546)		539
Tax benefit (expense)		921		(158)
Net of tax amount	$	(3,625)	$	381

The following table presents the reclassification adjustments out of accumulated other comprehensive income that were included in net income in the Consolidated Statements of Income for the three months ended March 31, 2018 and 2017.

	Amount Reclassified from Accumulated Other Comprehensive Income For the Three Months Ended
	March 31,
Details about Accumulated Other Comprehensive Income Components	2018		2017		Affected Line Item in the Statements of Income
Realized gains on available for sale securities
Realized securities gains reclassified into income	$	154	$	129	Total non-interest income - net realized gains on sale of available for sale securities
Related income tax expense		(32)		(44)	Income tax expense
Total reclassifications for the period, net of tax	$	122	$	85

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Fair Values of Financial Instruments

3 Months Ended

Mar. 31, 2018

Fair Values of Financial Instruments [Abstract]

Fair Values of Financial Instruments

Note 10:Fair Values of Financial Instruments

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

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

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

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

Items Measured at Fair Value on a Recurring Basis

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

Available-for-Sale Securities

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

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

Interest Rate Derivative Agreements

Interest rate swap positions, both assets and liabilities, are valued by a third-party pricing agent using an income approach and utilizing models that use as their basis readily observable market parameters.  This valuation process considers various factors including interest rate yield curves, time value and volatility factors. 

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

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
March 31, 2018
Available for sale securities
Mortgage-backed securities	$	94,263	$	-	$	94,263	$	-
Collateralized mortgage obligations		109,617		-		109,617		-
Municipal obligations		138,478		-		138,478		-
Corporate obligations		11,787		-		9,066		2,721
Interest rate swap asset		867		-		867		-
Interest rate swap liability		867		-		867		-

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2017
Available for sale securities
Mortgage-backed securities	$	67,798	$	-	$	67,798	$	-
Collateralized mortgage obligations		87,250		-		87,250		-
Municipal obligations		110,495		-		110,495		-
Corporate obligations		11,835		-		9,114		2,721
Interest rate swap asset		525		-		525		-
Interest rate swap liability		525		-		525		-

The following is a reconciliation of the beginning and ending balances for the three months ended March 31, 2018 and 2017 of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

	Three Months Ended
	March 31,
	2018		2017
Beginning balance	$	2,721	$	2,588
Total realized and unrealized gains (losses)
Included in net income		-		-
Included in other comprehensive income (loss)		-		-
Purchases, issuances and settlements		-		-
Ending balance	$	2,721	$	2,588
Total gains for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-	$	-

Items Measured at Fair Value on a Non-Recurring Basis

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

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

March 31, 2018	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,721	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	29.3 - 34.9	%
Impaired loans (collateral dependent)	$	591	Third party valuations	Discount to reflect realizable value	8.97	%

December 31, 2017	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,721	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	29.3 - 34.9	%

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
March 31, 2018		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	41,069	$	41,069	$	41,069	$	-	$	-
Interest-bearing time deposits		4,627		4,627		4,627		-		-
Loans held for sale		3,686		3,740		-		3,740		-
Loans, net		1,436,889		1,407,437		-		-		1,407,437
FHLB stock		12,820		12,820		-		12,820		-
Interest receivable		5,809		5,809		-		5,809		-
Interest rate swap asset		867		867		-		867		-
Liabilities
Deposits		1,540,452		1,534,582		1,083,726		-		450,856
FHLB advances		230,546		227,428		-		227,428		-
Other borrowings		18,110		18,000		-		18,000		-
Interest payable		593		593		-		593		-
Interest rate swap liability		867		867		-		867		-

					Fair Value Measurements Using
December 31, 2017		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	27,341	$	27,341	$	27,341	$	-	$	-
Interest-bearing time deposits		1,853		1,853		1,853		-		-
Loans held for sale		4,577		4,584		-		4,584		-
Loans, net		1,167,758		1,150,005		-		-		1,150,005
FHLB stock		11,183		11,183		-		11,183		-
Interest receivable		5,282		5,282		-		5,282		-
Interest rate swap asset		525		525		-		525		-
Liabilities
Deposits		1,202,034		1,199,781		830,877		-		368,904
FHLB advances		217,163		215,326		-		215,326		-
Other borrowings		4,232		4,300		-		4,300		-
Interest payable		456		456		-		456		-
Interest rate swap liability		525		525		-		525		-

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Acquisitions (Tables)

3 Months Ended

Mar. 31, 2018

Acquisitiion [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

Based on preliminary valuations of the fair value of tangible and intangible assets acquired, liabilities assumed and related deferred tax impacts, which are based on assumptions that are subject to change as management continues to evaluate, the purchase price for the Universal acquisition is detailed in the following table. If prior to the end of the one-year measurement period for finalizing the purchase price allocation, information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be recorded in the reporting period in which the adjustment amounts are determined. The measurement period adjustments will be calculated as if the accounting had been completed as of the acquisition date.

Assets			Liabilities
Cash and cash equivalents	$	11,326	Deposits
Interest-bearing time deposits		8,747	Non-interest bearing	$	81,061
Investment securities, available for sale		87,817	NOW accounts		66,372
			Savings and money market		85,690
Loans			Certificated of deposits		82,107
Commercial		203,621	Total deposits		315,230
Residential mortgage		36,410
Consumer		12,532	Borrowings		25,463
Total loans		252,563	Interest payable		81
			Subordinated debt		4,000
Premises and equipment, net		4,799	Other liabilities		832
Federal Home Loan Bank stock		1,637	Total liabilities assumed	$	345,606
Deferred tax asset, net		2,056
Cash value of life insurance		7,556
Goodwill		22,069
Core deposit intangible		4,545
Interest receivable		1,259
Other real estate owned and repossessed assets		1,009
Other assets		1,545
Total assets purchased	$	406,928
Common shares issued	$	42,323
Cash paid		18,999
Total purchase price	$	61,322

Business Acquisition, Pro Forma Information

The following schedule includes pro forma results for the three months ended March 31, 2018 and 2017, as if the Universal acquisition occurred as of the beginning of the reporting periods presented.

	Three Months Ended March 31,
	2018		2017
Summary of Operations
Net interest income	$	15,875	$	15,621
Provision for loan losses		(450)		(200)
Net interest income after provision	$	15,425	$	15,421
Non-interest income		4,713		4,730
Non-interest expense		(18,795)		(14,970)
Income before income taxes	$	1,343	$	5,181
Income tax benefit (expense)		208		(1,212)
Net income to common shareholders	$	1,551	$	3,969
Basic earnings per share	$	0.18	$	0.47
Diluted earnings per share	$	0.18	$	0.46

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2018

Earnings Per Share [Abstract]

Schedule of Earnings Per Share

Earnings per share were computed as follows:

	Three Months Ended March 31,
	2018					2017
		Net Income	Weighted- Average Shares		Per-Share Amount		Net Income	Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income	$	4,007	7,810,916	$	0.51	$	3,206	7,332,455	$	0.44
Effect of Dilutive Securities
Stock options			154,977					148,026
Diluted Earnings Per Share
Net income available and assumed conversions	$	4,007	7,965,893	$	0.50	$	3,206	7,480,481	$	0.43

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2018

Investment Securities [Abstract]

Amortized Cost and Fair Values of Securities

The amortized costs and approximate fair values, together with gross unrealized gains and losses on securities, are in the tables below.  All mortgage-backed securities and collateralized mortgage obligations held as of March 31, 2018 and December 31, 2017 were guaranteed by government sponsored entities, government corporations or federal agencies.

	March 31, 2018
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale Securities
Mortgage-backed securities	$	96,027	$	250	$	(2,014)	$	94,263
Collateralized mortgage obligations		111,800		95		(2,278)		109,617
Municipal obligations		137,909		2,141		(1,572)		138,478
Corporate obligations		12,966		22		(1,201)		11,787
Total investment securities	$	358,702	$	2,508	$	(7,065)	$	354,145

	December 31, 2017
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for Sale Securities
Mortgage-backed securities	$	68,335	$	225	$	(762)	$	67,798
Collateralized mortgage obligations		88,488		58		(1,296)		87,250
Municipal obligations		107,060		3,709		(274)		110,495
Corporate obligations		12,966		69		(1,200)		11,835
Total investment securities	$	276,849	$	4,061	$	(3,532)	$	277,378

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

	Available for Sale
Description of Securities	Amortized Cost		Fair Value
Security obligations due
Within one year	$	662	$	674
One to five years		10,483		10,515
Five to ten years		29,725		30,510
After ten years		110,005		108,566
		150,875		150,265
Mortgage-backed securities		96,027		94,263
Collateralized mortgage obligations		111,800		109,617
Totals	$	358,702	$	354,145

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 March 31, 2018 and December 31, 2017:

	March 31, 2018
	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale Securities
Mortgage-backed securities	$	33,554	$	(815)	$	26,218	$	(1,199)	$	59,772	$	(2,014)
Collateralized mortgage obligations		64,859		(1,034)		27,433		(1,244)		92,292		(2,278)
Municipal obligations		41,553		(1,005)		9,671		(567)		51,224		(1,572)
Corporate obligations		-		-		2,722		(1,201)		2,722		(1,201)
Total temporarily impaired securities	$	139,966	$	(2,854)	$	66,044	$	(4,211)	$	206,010	$	(7,065)

	December 31, 2017
	Less than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available for Sale Securities
Mortgage-backed securities	$	21,975	$	(127)	$	27,675	$	(635)	$	49,650	$	(762)
Collateralized mortgage obligations		47,153		(400)		28,887		(896)	$	76,040	$	(1,296)
Municipal obligations		4,479		(64)		10,041		(210)		14,520		(274)
Corporate obligations		-		-		2,722		(1,200)		2,722		(1,200)
Total temporarily impaired securities	$	73,607	$	(591)	$	69,325	$	(2,941)	$	142,932	$	(3,532)

Pooled Trust Preferred Collateralized Debt Obligations

The following table provides additional information related to the Bank’s investment in pooled trust preferred securities as of March 31, 2018:

Deal Name	Class	Original Par		Book Value		Fair Value		Unrealized Loss		Realized Losses 2018		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	Aa3	$	1,000	$	923	$	599	$	(323)	$	-	CCC-	45	48	2.85	%	8.23	%	53.61	%
U.S. Capital Funding I	B3		3,000		3,000		2,122		(878)		-	Caa1	26	30	5.92	%	5.92	%	12.29	%
		$	4,000	$	3,923	$	2,721	$	(1,201)	$	-

(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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Loans and Allowance (Tables)

3 Months Ended

Mar. 31, 2018

Loans and Allowance [Abstract]

Schedule of Classes of Loans

Classes of loans at March 31, 2018 and December 31, 2017include:

	March 31,		December 31,
	2018		2017
Real estate
Commercial	$	490,885	$	318,684
Commercial construction and development		52,889		28,164
Consumer closed end first mortgage		476,422		444,243
Consumer open end and junior liens		75,942		69,477
Total real estate loans		1,096,138		860,568
Other loans
Consumer loans
Auto		22,110		19,640
Boat/RVs		175,747		169,238
Other		6,190		6,188
Commercial and industrial		152,276		131,079
Total other loans		356,323		326,145
Total loans		1,452,461		1,186,713
Undisbursed loans in process		(9,502)		(13,071)
Unamortized deferred loan costs, net		6,467		6,503
Allowance for loan losses		(12,537)		(12,387)
Net loans	$	1,436,889	$	1,167,758

Non-Accrual Loans Segregated by Class of Loans

Nonaccrual loans, segregated by class of loans, as of March 31, 2018 and December 31, 2017 are as follows:

	March 31,		December 31,
	2018		2017
Real estate
Commercial	$	1,377	$	1,107
Commercial construction and development		-		-
Consumer closed end first mortgage		3,616		3,409
Consumer open end and junior liens		223		309
Consumer loans
Auto		11		22
Boat/RVs		367		198
Other		52		16
Commercial and industrial		182		159
Total nonaccrual loans	$	5,828	$	5,220

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 March 31, 2018 and December 31, 2017 are as follows:

	March 31, 2018
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	2,263	$	3,407	$	905	$	6,575	$	484,310	$	490,885	$	-
Commercial construction and development		40		-		-		40		52,849		52,889		-
Consumer closed end first mortgage		5,583		1,462		3,004		10,049		466,373		476,422		22
Consumer open end and junior liens		295		101		211		607		75,335		75,942		10
Consumer loans
Auto		102		45		10		157		21,953		22,110		-
Boat/RVs		718		299		230		1,247		174,500		175,747		-
Other		132		9		57		198		5,992		6,190		5
Commercial and industrial		275		9		183		467		151,809		152,276		-
Total	$	9,408	$	5,332	$	4,600	$	19,340	$	1,433,121	$	1,452,461	$	37

	December 31, 2017
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	2,171	$	3,311	$	998	$	6,480	$	312,204	$	318,684	$	-
Commercial construction and development		-		-		-		-		28,164		28,164		-
Consumer closed end first mortgage		5,914		1,340		3,224		10,478		433,765		444,243		31
Consumer open end and junior liens		540		123		264		927		68,550		69,477		-
Consumer loans
Auto		114		24		1		139		19,501		19,640		-
Boat/RVs		1,613		338		103		2,054		167,184		169,238		-
Other		65		18		12		95		6,093		6,188		-
Commercial and industrial		276		10		159		445		130,634		131,079		-
Total	$	10,693	$	5,164	$	4,761	$	20,618	$	1,166,095	$	1,186,713	$	31

Impaired Loans

The following tables present impaired loans as of and for the three month periods ended March 31, 2018 and 2017 and as of and for the year ended December 31, 2017. 

	March 31, 2018
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	801	$	801	$	-	$	839	$	-
Commercial construction and development		668		668		-		684		7
Consumer closed end first mortgage		1,411		1,411		-		1,477		1
Commercial and industrial		152		152		-		212		-
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		214		1
Total
Real estate
Commercial	$	1,015	$	1,015	$	100	$	1,053	$	1
Commercial construction and development	$	668	$	668	$	-	$	684	$	7
Consumer closed end first mortgage	$	1,411	$	1,411	$	-	$	1,477	$	1
Commercial and industrial	$	152	$	152	$	-	$	212	$	-
Total	$	3,246	$	3,246	$	100	$	3,426	$	9

	March 31, 2017
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	813	$	813	$	-	$	739	$	-
Commercial construction and development		792		792		-		807		9
Consumer closed end first mortgage		1,850		1,850		-		1,859		-
Commercial and industrial		179		179		-		183		1
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		214		-
Total
Real estate
Commercial	$	1,027	$	1,027	$	100	$	953	$	-
Commercial construction and development	$	792	$	792	$	-	$	807	$	9
Consumer closed end first mortgage	$	1,850	$	1,850	$	-	$	1,859	$	-
Commercial and industrial	$	179	$	179	$	-	$	183	$	1
Total	$	3,848	$	3,848	$	100	$	3,802	$	10

	December 31, 2017
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	878	$	878	$	-	$	765	$	1
Commercial construction and development		700		700		-		762		33
Consumer closed end first mortgage		1,543		1,543		-		1,451		1
Consumer open end and junior liens						-
Commercial and industrial		272		342		-		216		5
Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		214		-
Total
Real estate
Commercial	$	1,092	$	1,092	$	100	$	979	$	1
Commercial construction and development	$	700	$	700	$	-	$	762	$	33
Consumer closed end first mortgage	$	1,543	$	1,543	$	-	$	1,451	$	1
Consumer open end and junior liens	$	-	$	-	$	-	$	-	$	-
Commercial and industrial	$	272	$	342	$	-	$	216	$	5
Total	$	3,607	$	3,677	$	100	$	3,408	$	40

Commercial and Retail Credit Exposure Credit Risk Profile by Internal Rating

	March 31, 2018
		Commercial								Consumer
		Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial		$	472,398	$	10,996	$	7,474	$	17							$	490,885
Commercial construction and development			52,221		-		668		-								52,889
Consumer closed end first mortgage										$	470,769	$	-	$	5,653		476,422
Consumer open end and junior liens											75,590		-		352		75,942
Other loans
Consumer loans
Auto											22,085		-		25		22,110
Boat/RVs											175,358		-		389		175,747
Other											6,111		-		79		6,190
Commercial and industrial			139,761		5,665		6,850		-								152,276
		$	664,380	$	16,661	$	14,992	$	17	$	749,913	$	-	$	6,498	$	1,452,461

	December 31, 2017
		Commercial								Consumer
		Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial		$	309,451	$	4,219	$	4,996	$	18							$	318,684
Commercial construction and development			27,464		-		700		-								28,164
Consumer closed end first mortgage										$	439,075	$	-	$	5,168		444,243
Consumer open end and junior liens											69,130		-		347		69,477
Other loans
Consumer loans
Auto											19,616		-		24		19,640
Boat/RVs											169,036		-		202		169,238
Other											6,133		-		55		6,188
Commercial and industrial			120,211		5,784		5,084		-								131,079
		$	457,126	$	10,003	$	10,780	$	18	$	702,990	$	-	$	5,796	$	1,186,713

Activity in Allowance for Loan Losses by Portfolio Segment

The following table details activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2018 and 2017, respectively.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other segments.

	Three Months Ended March 31, 2018
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	7,704	$	1,761	$	2,922	$	12,387
Provision charged (credited) to expense		408		(49)		91		450
Losses charged off		(138)		(20)		(214)		(372)
Recoveries		-		8		64		72
Balance, end of period	$	7,974	$	1,700	$	2,863	$	12,537

	Three Months Ended March 31, 2017
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	7,358	$	2,303	$	2,721	$	12,382
Provision charged (credited) to expense		32		17		151		200
Losses charged off		-		(45)		(204)		(249)
Recoveries		7		4		38		49
Balance, end of period	$	7,397	$	2,279	$	2,706	$	12,382

The following tables provide a breakdown of the allowance for loan losses and loan portfolio balances by segment as of March 31, 2018 and 2017, and December 31, 2017.

	March 31, 2018
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,874		1,700		2,863		12,437
Loans acquired with deteriorated credit quality		-		-		-		-
Total allowance for loan losses	$	7,974	$	1,700	$	2,863	$	12,537
Loan balances
Individually evaluated for impairment	$	1,835	$	1,411	$	-	$	3,246
Collectively evaluated for impairment		693,903		475,011		279,989		1,448,903
Loans acquired with deteriorated credit quality		312		-		-		312
Gross loans	$	696,050	$	476,422	$	279,989	$	1,452,461

	March 31, 2017
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,297		2,279		2,706		12,282
Total allowance for loan losses	$	7,397	$	2,279	$	2,706	$	12,382
Loan balances
Individually evaluated for impairment	$	1,998	$	1,850	$	-	$	3,848
Collectively evaluated for impairment		454,481		473,497		239,561		1,167,539
Gross loans	$	456,479	$	475,347	$	239,561	$	1,171,387

	December 31, 2017
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,604		1,761		2,922		12,287
Total allowance for loan losses	$	7,704	$	1,761	$	2,922	$	12,387
Loan balances
Individually evaluated for impairment	$	2,064	$	1,543	$	-	$	3,607
Collectively evaluated for impairment		475,863		442,700		264,543		1,183,106
Gross loans	$	477,927	$	444,243	$	264,543	$	1,186,713

Troubled Debts Restructured

The following tables describe troubled debts restructured during the three month periods ended March 31, 2018 and 2017:

	Three Months Ended
	March 31, 2018					March 31, 2017
	No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		No. of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Real estate
Commercial	3	$	138	$	140	-	$	-	$	-
Consumer closed end first mortgage	3		47		59	1		65		67
Consumer open end and junior liens	1		36		36	-		-		-
Commercial and industrial	1		61		61	1		72		72

Newly Restructured Loans by Types

Newly restructured loans by type for the three months ended March 31, 2018 and 2017 are as follows:

	Three Months Ended March 31, 2018
		Rate		Term		Combination		Total Modification
Real estate
Commercial	$	-	$	-	$	140	$	140
Consumer closed end first mortgage		-		-		59		59
Consumer open end and junior liens		-		36		-		36
Commercial and industrial		-		61		-		61

	Three Months Ended March 31, 2017
		Rate		Term		Combination		Total Modification
Real estate
Consumer closed end first mortgage	$	-	$	-	$	67	$	67
Commercial and industrial		-		72		-		72

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Accounting for Certain Loans Acquired in a Transfer (Tables)

3 Months Ended

Mar. 31, 2018

Universal Bancorp [Member]

Schedule of Acquired Loans

The following table presents the carrying amounts of the acquired loans included in the balance sheet amounts of loans receivable as of March 31, 2018.

	March 31, 2018
Outstanding balance
Real estate
Commercial	$	161,334
Commercial construction and development		22,849
Consumer closed end first mortgage		37,774
Consumer open end and junior liens		9,318
Total real estate loans		231,275
Other loans
Consumer loans
Auto		2,150
Boat/RVs		173
Other		919
Commercial and industrial		22,690
Total other loans		25,932
Total loans	$	257,207
Carrying amount	$	252,989
Allowance		-
Carrying amount net of allowance	$	252,989

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Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2018

Derivative Financial Instruments [Abstract]

Amounts of Derivative Financial Instruments

The following table shows the amounts of derivative financial instruments at March 31, 2018 and December 31, 2017.

	Asset Derivatives
		Fair Value					Fair Value
	Balance Sheet	March 31,		December 31,		Balance Sheet	March 31,		December 31,
	Location	2018		2017		Location	2018		2017
Derivatives not designated as hedging instruments:
Interest rate contracts	Other assets	$	867	$	525	Other liabilities	$	867	$	525

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Accumulated Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2018

Accumulated Other Comprehensive Income (Loss) [Abstract]

Components of Accumulated Other Comprehensive Income (Loss)

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

	March 31,		December 31,
	2018		2017
Net unrealized gain (loss) on securities available for sale	$	(4,556)	$	529
Net unrealized gain relating to defined benefit plan liability		10		10
		(4,546)		539
Tax benefit (expense)		921		(158)
Net of tax amount	$	(3,625)	$	381

Reclassification out of Accumulated Other Comprehensive Income (Loss)

The following table presents the reclassification adjustments out of accumulated other comprehensive income that were included in net income in the Consolidated Statements of Income for the three months ended March 31, 2018 and 2017.

	Amount Reclassified from Accumulated Other Comprehensive Income For the Three Months Ended
	March 31,
Details about Accumulated Other Comprehensive Income Components	2018		2017		Affected Line Item in the Statements of Income
Realized gains on available for sale securities
Realized securities gains reclassified into income	$	154	$	129	Total non-interest income - net realized gains on sale of available for sale securities
Related income tax expense		(32)		(44)	Income tax expense
Total reclassifications for the period, net of tax	$	122	$	85

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Fair Values of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2018

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 and liabilities measured on a recurring basis and level within the ASC 820 fair value hierarchy.

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
March 31, 2018
Available for sale securities
Mortgage-backed securities	$	94,263	$	-	$	94,263	$	-
Collateralized mortgage obligations		109,617		-		109,617		-
Municipal obligations		138,478		-		138,478		-
Corporate obligations		11,787		-		9,066		2,721
Interest rate swap asset		867		-		867		-
Interest rate swap liability		867		-		867		-

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
December 31, 2017
Available for sale securities
Mortgage-backed securities	$	67,798	$	-	$	67,798	$	-
Collateralized mortgage obligations		87,250		-		87,250		-
Municipal obligations		110,495		-		110,495		-
Corporate obligations		11,835		-		9,114		2,721
Interest rate swap asset		525		-		525		-
Interest rate swap liability		525		-		525		-

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

The following is a reconciliation of the beginning and ending balances for the three months ended March 31, 2018 and 2017 of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

	Three Months Ended
	March 31,
	2018		2017
Beginning balance	$	2,721	$	2,588
Total realized and unrealized gains (losses)
Included in net income		-		-
Included in other comprehensive income (loss)		-		-
Purchases, issuances and settlements		-		-
Ending balance	$	2,721	$	2,588
Total gains 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	$	-	$	-

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:

March 31, 2018	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,721	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	29.3 - 34.9	%
Impaired loans (collateral dependent)	$	591	Third party valuations	Discount to reflect realizable value	8.97	%

December 31, 2017	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,721	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	29.3 - 34.9	%

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
March 31, 2018		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	41,069	$	41,069	$	41,069	$	-	$	-
Interest-bearing time deposits		4,627		4,627		4,627		-		-
Loans held for sale		3,686		3,740		-		3,740		-
Loans, net		1,436,889		1,407,437		-		-		1,407,437
FHLB stock		12,820		12,820		-		12,820		-
Interest receivable		5,809		5,809		-		5,809		-
Interest rate swap asset		867		867		-		867		-
Liabilities
Deposits		1,540,452		1,534,582		1,083,726		-		450,856
FHLB advances		230,546		227,428		-		227,428		-
Other borrowings		18,110		18,000		-		18,000		-
Interest payable		593		593		-		593		-
Interest rate swap liability		867		867		-		867		-

					Fair Value Measurements Using
December 31, 2017		Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	27,341	$	27,341	$	27,341	$	-	$	-
Interest-bearing time deposits		1,853		1,853		1,853		-		-
Loans held for sale		4,577		4,584		-		4,584		-
Loans, net		1,167,758		1,150,005		-		-		1,150,005
FHLB stock		11,183		11,183		-		11,183		-
Interest receivable		5,282		5,282		-		5,282		-
Interest rate swap asset		525		525		-		525		-
Liabilities
Deposits		1,202,034		1,199,781		830,877		-		368,904
FHLB advances		217,163		215,326		-		215,326		-
Other borrowings		4,232		4,300		-		4,300		-
Interest payable		456		456		-		456		-
Interest rate swap liability		525		525		-		525		-

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Acquisitions (Narrative) (Details) - USD ($)		1 Months Ended	3 Months Ended
	Feb. 28, 2018	Mar. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Business Acquisition [Line Items]
Share price	$ 35.70
Goodwill		$ 23,869,000	$ 23,869,000	$ 1,800,000
Universal Bancorp [Member]
Business Acquisition [Line Items]
Business acquisition, percentage of voting interests acquired	100.00%
Business acquisition, effective date of acquisition			Feb. 28, 2018
Business acquisition, name of acquired entity			Universal Bancorp ("Universal")
Business combination acquirer's shares issued per acquiree's single share	15.6
Business combination acquirer cash given per acquiree's single share	$ 250.00
Business acquisition, equity interest issued or issuable, number of shares	1,200,000
Business combination, consideration transferred, equity interests issued and issuable	$ 42,323,000
Business acquisition, transaction costs	605,000
Core deposit intangible	4,545,000
Goodwill	$ 22,069,000
Finite lived intangible asset useful life	15 years
Total purchase price	$ 61,322,000
Loans acquired		257,207,000	$ 257,207,000
Credit adjustment	$ 4,600,000
Revenue, pro forma		1,400,000
Earnings, pro forma		$ 1,200,000

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Acquisitions (Schedule of Recognized Identified Assets Acquired and Liabilities Assumed) (Details) - USD ($) $ in Thousands		3 Months Ended
	Feb. 28, 2018	Mar. 31, 2018	Dec. 31, 2017
Assets:
Goodwill		$ 23,869	$ 1,800
Liabilities:
Cash paid		$ 18,999
Universal Bancorp [Member]
Assets:
Cash and cash equivalents	$ 11,326
Interest-bearing time deposits	8,747
Investment securities, available for sale	87,817
Total Loans	252,563
Premises and equipment, net	4,799
Federal Home Loan Bank stock	1,637
Deferred tax asset, net	2,056
Cash value of life insurance	7,556
Goodwill	22,069
Core deposit intangible	4,545
Interest receivables	1,259
Other real estate owned and repossessed	1,009
Other assets	1,545
Total assets purchased	406,928
Liabilities:
Non-interest bearing	81,061
NOW accounts	66,372
Savings and money market	85,690
Certificate of deposits	82,107
Total deposits	315,230
Borrowings	25,463
Interest payable	81
Subordinated debt	4,000
Other liabilities	832
Total liabilities assumed	345,606
Common shares issued	42,323
Cash paid	18,999
Total purchase price	61,322
Universal Bancorp [Member] | Commercial Segment [Member]
Assets:
Total Loans	203,621
Universal Bancorp [Member] | Residential Mortgage [Member]
Assets:
Total Loans	36,410
Universal Bancorp [Member] | Consumer [Member]
Assets:
Total Loans	$ 12,532

XML

Acquisitions (Business Acquisition, Pro Forma Information) (Details) - Universal Bancorp [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Net interest income	$ 15,875	$ 15,621
Provision for loan losses	(450)	(200)
Net interest income after provision	15,425	15,421
Non-interest income	4,713	4,730
Non-interest expense	(18,795)	(14,970)
Income before income taxes	1,343	5,181
Income tax expense	208	(1,212)
Net income to common shareholders	$ 1,551	$ 3,969
Basic earnings per share	$ 0.18	$ 0.47
Diluted earnings per share	$ 0.18	$ 0.46

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Earnings Per Share (Schedule of Earnings per Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Basic Earnings Per Share
Net income	$ 4,007	$ 3,206
Weighted-Average Shares number of common shares, basic	7,810,916	7,332,455
Earnings per share, basic	$ 0.51	$ 0.44
Diluted Earnings Per Share
Net income available and assumed conversions	$ 4,007	$ 3,206
Weighted-Average Shares, effect of dilutive securities stock option	154,977	148,026
Weighted-Average Shares income available to common stockholders and assumed conversions, diluted	7,965,893	7,480,481
Earnings per share, diluted	$ 0.50	$ 0.43

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Investment Securities (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017	Dec. 31, 2011
Investment [Line Items]
Fair value of investments reported at less than historical cost	$ 206,010,000		$ 142,932,000
Percentage of Bank portfolio	58.20%		51.50%
Proceeds from sales of securities, available for sale	$ 36,811,000	$ 5,681,000
Gross realized gain on sale of securities	154,000	129,000
Gross realized losses on sale of securities	$ 0	0
Percentage of recovery estimate depository institutions	10.00%
Percentage of recovery estimate insurance companies	15.00%
Other than temporary impairment losses investments available for sale securities	$ 0	$ 0
Pooled Trust Preferred Securities [Member]
Investment [Line Items]
Current par balance	3,900,000
Original Par	$ 4,000,000			$ 4,000,000

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Investment Securities (Amortized Cost and Fair Values of Securities ) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 358,702	$ 276,849
Gross Unrealized Gains	2,508	4,061
Gross Unrealized Losses	(7,065)	(3,532)
Fair Value, available for sale	354,145	277,378
Mortgage-backed securities, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	96,027	68,335
Gross Unrealized Gains	250	225
Gross Unrealized Losses	(2,014)	(762)
Fair Value, available for sale	94,263	67,798
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	111,800	88,488
Gross Unrealized Gains	95	58
Gross Unrealized Losses	(2,278)	(1,296)
Fair Value, available for sale	109,617	87,250
Municipals
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	137,909	107,060
Gross Unrealized Gains	2,141	3,709
Gross Unrealized Losses	(1,572)	(274)
Fair Value, available for sale	138,478	110,495
Corporate obligations
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	12,966	12,966
Gross Unrealized Gains	22	69
Gross Unrealized Losses	(1,201)	(1,200)
Fair Value, available for sale	$ 11,787	$ 11,835

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Investment Securities (Amortized Cost and Fair Value of Available-for-Sale Securities by Contractual Maturity) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Security obligations due, amortized cost, within one year	$ 662
Security obligations due, amortized cost, One to five years	10,483
Security obligations due, amortized cost, Five to ten years	29,725
Security obligations due, amortized cost, After ten years	110,005
Total security obligations due, amortized cost	150,875
Available for sale, amortized cost	358,702	$ 276,849
Security obligations due, Fair Value, within one year	674
Security obligations due, Fair value, One to five years	10,515
Security obligations due, Fair value, Five to ten years	30,510
Security obligations due, Fair value, After ten years	108,566
Total Security obligations due, Fair value	150,265
Investment securities available for sale (carried at fair value)	354,145	277,378
Mortgage-backed securities, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Available for sale, amortized cost	96,027	68,335
Investment securities available for sale (carried at fair value)	94,263	67,798
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Available for sale, amortized cost	111,800	88,488
Investment securities available for sale (carried at fair value)	$ 109,617	$ 87,250

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Investment Securities (Investments Gross Unrealized Losses and Fair Value in Continuous Unrealized Loss Position) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	$ 139,966	$ 73,607
Less than 12 months, Unrealized Losses	(2,854)	(591)
12 months or more, Fair Value	66,044	69,325
12 months or more, Unrealized Losses	(4,211)	(2,941)
Total, Fair Value	206,010	142,932
Total, Unrealized Losses	(7,065)	(3,532)
Mortgage-backed securities, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	33,554	21,975
Less than 12 months, Unrealized Losses	(815)	(127)
12 months or more, Fair Value	26,218	27,675
12 months or more, Unrealized Losses	(1,199)	(635)
Total, Fair Value	59,772	49,650
Total, Unrealized Losses	(2,014)	(762)
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	64,859	47,153
Less than 12 months, Unrealized Losses	(1,034)	(400)
12 months or more, Fair Value	27,433	28,887
12 months or more, Unrealized Losses	(1,244)	(896)
Total, Fair Value	92,292	76,040
Total, Unrealized Losses	(2,278)	(1,296)
Municipals
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	41,553	4,479
Less than 12 months, Unrealized Losses	(1,005)	(64)
12 months or more, Fair Value	9,671	10,041
12 months or more, Unrealized Losses	(567)	(210)
Total, Fair Value	51,224	14,520
Total, Unrealized Losses	(1,572)	(274)
Corporate obligations
Schedule of Available-for-sale Securities [Line Items]
12 months or more, Fair Value	2,722	2,722
12 months or more, Unrealized Losses	(1,201)	(1,200)
Total, Fair Value	2,722	2,722
Total, Unrealized Losses	$ (1,201)	$ (1,200)

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Investment Securities (Pooled Trust Preferred Collateralized Debt Obligations) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) loan entity	Mar. 31, 2017 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2011 USD ($)
Fair Value, available for sale	$ 354,145		$ 277,378
Unrealized loss	(7,065)		$ (3,532)
Realized losses YTD	154	$ 129
Pooled Trust Preferred Securities [Member]
Original Par	4,000			$ 4,000
Book Value	3,923
Fair Value, available for sale	2,721
Unrealized loss	$ (1,201)
Pooled Trust Preferred Securities [Member] | Alesco Preferred Funding IX [Member]
Class	Aa3
Original Par	$ 1,000
Book Value	923
Fair Value, available for sale	599
Unrealized loss	$ (323)
Number of Banks / Insurance Cos. Currently Performing | loan	45
Total Number of Banks and Insurance Cos. In Issuance (Unique) | entity	48
Actual Deferrals/Defaults (as a % of original collateral)	2.85%
Total Projected Defaults (as a % of performing collateral)	8.23%
Excess subordination (after taking into account best estimate of future deferrals/defaults)	53.61%
Pooled Trust Preferred Securities [Member] | U.S. Capital Funding I [Member]
Class	B3
Original Par	$ 3,000
Book Value	3,000
Fair Value, available for sale	2,122
Unrealized loss	$ (878)
Number of Banks / Insurance Cos. Currently Performing | loan	26
Total Number of Banks and Insurance Cos. In Issuance (Unique) | entity	30
Actual Deferrals/Defaults (as a % of original collateral)	5.92%
Total Projected Defaults (as a % of performing collateral)	5.92%
Excess subordination (after taking into account best estimate of future deferrals/defaults)	12.29%
Minimum | Pooled Trust Preferred Securities [Member] | Alesco Preferred Funding IX [Member]
Class	CCC-
Minimum | Pooled Trust Preferred Securities [Member] | U.S. Capital Funding I [Member]
Class	Caa1

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Loans and Allowance (Narrative) (Details)	Mar. 31, 2018 USD ($)
Loans and Allowance [Abstract]
Mortgage loans in process of foreclosure, amount	$ 1,200,000
Other repossessed assets	363,000
Real estate held-for-sale	$ 1,400,000

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Loans and Allowance (Categories of Loans) (Details) - USD ($)	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017	Dec. 31, 2016
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,452,461,000	$ 1,186,713,000	$ 1,171,387,000
Undisbursed loans in process	(9,502,000)	(13,071,000)
Unamortized deferred loan costs, net	6,467,000	6,503,000
Allowance for loan losses	(12,537,000)	(12,387,000)	$ (12,382,000)	$ (12,382,000)
Net loans	1,436,889,000	1,167,758,000
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	490,885,000	318,684,000
Construction Loans [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	52,889,000	28,164,000
First Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	476,422,000	444,243,000
Second Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	75,942,000	69,477,000
Automobile Loan [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	22,110,000	19,640,000
Boat/RVs [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	175,747,000	169,238,000
Other [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	6,190,000	6,188,000
Commercial and Industrial [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	152,276,000	131,079,000
Real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,096,138,000	860,568,000
Real estate | Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	490,885,000	318,684,000
Real estate | Construction Loans [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	52,889,000	28,164,000
Real estate | First Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	476,422,000	444,243,000
Real estate | Second Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	75,942,000	69,477,000
Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	356,323,000	326,145,000
Other | Automobile Loan [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	22,110,000	19,640,000
Other | Boat/RVs [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	175,747,000	169,238,000
Other | Other [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	6,190,000	6,188,000
Other | Commercial and Industrial [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 152,276,000	$ 131,079,000

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Loans and Allowance (Non-Accrual Loan, Segregated by Class of Loans) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 5,828	$ 5,220
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	1,377	1,107
First Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	3,616	3,409
Second Mortgage [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	223	309
Automobile Loan [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	11	22
Boat/RVs [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	367	198
Other [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	52	16
Commercial and Industrial [Member] | Commercial Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 182	$ 159

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Loans and Allowance (Age Analysis of Past Due Loans Segregated by Class of Loans) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 19,340	$ 20,618
Current	1,433,121	1,166,095
Total loans receivable	1,452,461	1,186,713	$ 1,171,387
Total Loans > 90 Days or More and Accruing	37	31
30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	9,408	10,693
60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	5,332	5,164
90 Days Past Due or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	4,600	4,761
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	6,575	6,480
Current	484,310	312,204
Total loans receivable	490,885	318,684
Commercial Real Estate [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,263	2,171
Commercial Real Estate [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,407	3,311
Commercial Real Estate [Member] | 90 Days Past Due or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	905	998
Commercial Segment [Member] | Construction Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	40
Current	52,849	28,164
Total loans receivable	52,889	28,164
Commercial Segment [Member] | Construction Loans [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	40
Commercial Segment [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	467	445
Current	151,809	130,634
Total loans receivable	152,276	131,079
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	275	276
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	9	10
Commercial Segment [Member] | Commercial and Industrial [Member] | 90 Days Past Due or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	183	159
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	10,049	10,478
Current	466,373	433,765
Total loans receivable	476,422	444,243
Total Loans > 90 Days or More and Accruing	22	31
Consumer [Member] | First Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	5,583	5,914
Consumer [Member] | First Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,462	1,340
Consumer [Member] | First Mortgage [Member] | 90 Days Past Due or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,004	3,224
Consumer [Member] | Second Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	607	927
Current	75,335	68,550
Total loans receivable	75,942	69,477
Total Loans > 90 Days or More and Accruing	10
Consumer [Member] | Second Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	295	540
Consumer [Member] | Second Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	101	123
Consumer [Member] | Second Mortgage [Member] | 90 Days Past Due or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	211	264
Consumer [Member] | Automobile Loan [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	157	139
Current	21,953	19,501
Total loans receivable	22,110	19,640
Consumer [Member] | Automobile Loan [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	102	114
Consumer [Member] | Automobile Loan [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	45	24
Consumer [Member] | Automobile Loan [Member] | 90 Days Past Due or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	10	1
Consumer [Member] | Boat/RVs [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,247	2,054
Current	174,500	167,184
Total loans receivable	175,747	169,238
Consumer [Member] | Boat/RVs [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	718	1,613
Consumer [Member] | Boat/RVs [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	299	338
Consumer [Member] | Boat/RVs [Member] | 90 Days Past Due or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	230	103
Consumer [Member] | Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	198	95
Current	5,992	6,093
Total loans receivable	6,190	6,188
Total Loans > 90 Days or More and Accruing	5
Consumer [Member] | Other [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	132	65
Consumer [Member] | Other [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	9	18
Consumer [Member] | Other [Member] | 90 Days Past Due or More [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 57	$ 12

XML

Loans and Allowance (Impaired Loans) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Dec. 31, 2017
Impaired Financing Receivable With Related Allowance [Abstract]
Specific Allowance	$ 100	$ 100	$ 100
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	3,246	3,848	3,607
Unpaid principal balance, total	3,246	3,848	3,677
Average investment in impaired loans, total	3,426	3,802	3,408
Interest income recognized, total	9	10	40
Commercial Real Estate [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	801	813	878
Unpaid principal balance	801	813	878
Average investment in impaired loans	839	739	765
Interest income recognized			1
Impaired Financing Receivable With Related Allowance [Abstract]
Recorded balance	214	214	214
Unpaid principal balance	214	214	214
Specific Allowance	100	100	100
Average investment in impaired loans	214	214	214
Interest income recognized	1
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	1,015	1,027	1,092
Unpaid principal balance, total	1,015	1,027	1,092
Average investment in impaired loans, total	1,053	953	979
Interest income recognized, total	1		1
Commercial Segment [Member] | Construction Loans [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	668	792	700
Unpaid principal balance	668	792	700
Average investment in impaired loans	684	807	762
Interest income recognized	7	9	33
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	668	792	700
Unpaid principal balance, total	668	792	700
Average investment in impaired loans, total	684	807	762
Interest income recognized, total	7	9	33
Commercial Segment [Member] | Commercial and Industrial [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	152	179	272
Unpaid principal balance	152	179	342
Average investment in impaired loans	212	183	216
Interest income recognized		1	5
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	152	179	272
Unpaid principal balance, total	152	179	342
Average investment in impaired loans, total	212	183	216
Interest income recognized, total		1	5
Consumer [Member] | First Mortgage [Member]
Impaired Financing Receivable With No Related Allowance [Abstract]
Recorded balance	1,411	1,850	1,543
Unpaid principal balance	1,411	1,850	1,543
Average investment in impaired loans	1,477	1,859	1,451
Interest income recognized	1		1
Impaired Financing Receivables Total [Abstract]
Recorded balance, total	1,411	1,850	1,543
Unpaid principal balance, total	1,411	1,850	1,543
Average investment in impaired loans, total	1,477	$ 1,859	1,451
Interest income recognized, total	$ 1		$ 1

XML

Loans and Allowance (Commercial and Retail Credit Exposure Credit Risk Profile by Internal Rating) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 1,452,461	$ 1,186,713	$ 1,171,387
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	490,885	318,684
Commercial Real Estate [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	472,398	309,451
Commercial Real Estate [Member] | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	10,996	4,219
Commercial Real Estate [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	7,474	4,996
Commercial Real Estate [Member] | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	17	18
Commercial Segment [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	664,380	457,126
Commercial Segment [Member] | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	16,661	10,003
Commercial Segment [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	14,992	10,780
Commercial Segment [Member] | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	17	18
Commercial Segment [Member] | Construction Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	52,889	28,164
Commercial Segment [Member] | Construction Loans [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	52,221	27,464
Commercial Segment [Member] | Construction Loans [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	668	700
Commercial Segment [Member] | Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	152,276	131,079
Commercial Segment [Member] | Commercial and Industrial [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	139,761	120,211
Commercial Segment [Member] | Commercial and Industrial [Member] | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	5,665	5,784
Commercial Segment [Member] | Commercial and Industrial [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	6,850	5,084
Consumer [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	749,913	702,990
Consumer [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	6,498	5,796
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	476,422	444,243
Consumer [Member] | First Mortgage [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	470,769	439,075
Consumer [Member] | First Mortgage [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	5,653	5,168
Consumer [Member] | Second Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	75,942	69,477
Consumer [Member] | Second Mortgage [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	75,590	69,130
Consumer [Member] | Second Mortgage [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	352	347
Consumer [Member] | Automobile Loan [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	22,110	19,640
Consumer [Member] | Automobile Loan [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	22,085	19,616
Consumer [Member] | Automobile Loan [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	25	24
Consumer [Member] | Boat/RVs [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	175,747	169,238
Consumer [Member] | Boat/RVs [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	175,358	169,036
Consumer [Member] | Boat/RVs [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	389	202
Consumer [Member] | Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	6,190	6,188
Consumer [Member] | Other [Member] | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	6,111	6,133
Consumer [Member] | Other [Member] | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 79	$ 55

XML

Loans and Allowance (Activity in Allowance for Loan Losses by Portfolio Segment) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period	$ 12,387,000	$ 12,382,000
Provision charged (credited) to expense	450,000	200,000
Losses charged off	(372,000)	(249,000)
Recoveries	72,000	49,000
Allowance for loan losses, End of period	12,537,000	12,382,000
Allowance for loan losses, individually evaluated for impairment, Ending balance			$ 100,000	$ 100,000	$ 100,000
Allowance for loan losses, collectively evaluated for impairment, Ending balance			12,437,000	12,287,000	12,282,000
Total allowance for loan losses	12,387,000	12,382,000	12,537,000	12,387,000	12,382,000
Loans, individually evaluated for impairment, Ending balance			3,246,000	3,607,000	3,848,000
Loans, collectively evaluated for impairment, Ending balance			1,448,903,000	1,183,106,000	1,167,539,000
Total loans receivable			1,452,461,000	1,186,713,000	1,171,387,000
Receivables Acquired with Deteriorated Credit Quality [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable			312,000
Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period	7,704,000	7,358,000
Provision charged (credited) to expense	408,000	32,000
Losses charged off	(138,000)
Recoveries		7,000
Allowance for loan losses, End of period	7,974,000	7,397,000
Allowance for loan losses, individually evaluated for impairment, Ending balance			100,000	100,000	100,000
Allowance for loan losses, collectively evaluated for impairment, Ending balance			7,874,000	7,604,000	7,297,000
Total allowance for loan losses	7,704,000	7,358,000	7,974,000	7,704,000	7,397,000
Loans, individually evaluated for impairment, Ending balance			1,835,000	2,064,000	1,998,000
Loans, collectively evaluated for impairment, Ending balance			693,903,000	475,863,000	454,481,000
Total loans receivable			696,050,000	477,927,000	456,479,000
Commercial | Receivables Acquired with Deteriorated Credit Quality [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans receivable			312,000
Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period	1,761,000	2,303,000
Provision charged (credited) to expense	(49,000)	17,000
Losses charged off	(20,000)	(45,000)
Recoveries	8,000	4,000
Allowance for loan losses, End of period	1,700,000	2,279,000
Allowance for loan losses, individually evaluated for impairment, Ending balance
Allowance for loan losses, collectively evaluated for impairment, Ending balance			1,700,000	1,761,000	2,279,000
Total allowance for loan losses	1,761,000	2,303,000	1,700,000	1,761,000	2,279,000
Loans, individually evaluated for impairment, Ending balance			1,411,000	1,543,000	1,850,000
Loans, collectively evaluated for impairment, Ending balance			475,011,000	442,700,000	473,497,000
Total loans receivable			476,422,000	444,243,000	475,347,000
Consumer Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of period	2,922,000	2,721,000
Provision charged (credited) to expense	91,000	151,000
Losses charged off	(214,000)	(204,000)
Recoveries	64,000	38,000
Allowance for loan losses, End of period	2,863,000	2,706,000
Allowance for loan losses, individually evaluated for impairment, Ending balance
Allowance for loan losses, collectively evaluated for impairment, Ending balance			2,863,000	2,922,000	2,706,000
Total allowance for loan losses	$ 2,922,000	$ 2,721,000	2,863,000	2,922,000	2,706,000
Loans, collectively evaluated for impairment, Ending balance			279,989,000	264,543,000	239,561,000
Total loans receivable			$ 279,989,000	$ 264,543,000	$ 239,561,000

XML

Loans and Allowance (Troubled Debts Restructured) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2018 USD ($) loan	Mar. 31, 2017 USD ($) loan
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	3
Pre-Modification Outstanding Recorded Balance	$ 138
Post-Modification Outstanding Recorded Balance	$ 140
Commercial Segment [Member] | Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	1	1
Pre-Modification Outstanding Recorded Balance	$ 61	$ 72
Post-Modification Outstanding Recorded Balance	$ 61	$ 72
Consumer [Member] | First Mortgage [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	3	1
Pre-Modification Outstanding Recorded Balance	$ 47	$ 65
Post-Modification Outstanding Recorded Balance	$ 59	$ 67
Consumer [Member] | Second Mortgage [Member]
Financing Receivable, Modifications [Line Items]
No. of Loans | loan	1
Pre-Modification Outstanding Recorded Balance	$ 36
Post-Modification Outstanding Recorded Balance	$ 36

XML

Loans and Allowance (Newly Restructured Loans by Type) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Combination	$ 140
Total modification	140
Commercial Segment [Member] | Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term	61	$ 72
Total modification	61	72
Consumer [Member] | First Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Combination	59	67
Total modification	59	$ 67
Consumer [Member] | Second Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term	36
Total modification	$ 36

XML

Accounting for Certain Loans Acquired in a Transfer (Schedule of Acquired Loans) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017
Total loans receivable	$ 1,452,461	$ 1,186,713	$ 1,171,387
Universal Bancorp [Member]
Loans acquired	257,207
Carrying amount, gross	252,989
Carrying amount net of allowance	252,989
Commercial Real Estate [Member]
Total loans receivable	490,885	318,684
Real estate
Total loans receivable	1,096,138	860,568
Real estate | Universal Bancorp [Member]
Loans acquired	231,275
Real estate | Commercial Real Estate [Member]
Total loans receivable	490,885	318,684
Real estate | Commercial Real Estate [Member] | Universal Bancorp [Member]
Loans acquired	161,334
Other
Total loans receivable	356,323	326,145
Other | Universal Bancorp [Member]
Loans acquired	25,932
Construction Loans [Member] | Commercial Segment [Member]
Total loans receivable	52,889	28,164
Construction Loans [Member] | Real estate | Commercial Segment [Member]
Total loans receivable	52,889	28,164
Construction Loans [Member] | Real estate | Commercial Segment [Member] | Universal Bancorp [Member]
Loans acquired	22,849
First Mortgage [Member] | Consumer [Member]
Total loans receivable	476,422	444,243
First Mortgage [Member] | Real estate | Consumer [Member]
Total loans receivable	476,422	444,243
First Mortgage [Member] | Real estate | Consumer [Member] | Universal Bancorp [Member]
Loans acquired	37,774
Second Mortgage [Member] | Consumer [Member]
Total loans receivable	75,942	69,477
Second Mortgage [Member] | Real estate | Consumer [Member]
Total loans receivable	75,942	69,477
Second Mortgage [Member] | Real estate | Consumer [Member] | Universal Bancorp [Member]
Loans acquired	9,318
Automobile Loan [Member] | Consumer [Member]
Total loans receivable	22,110	19,640
Automobile Loan [Member] | Other | Consumer [Member]
Total loans receivable	22,110	19,640
Automobile Loan [Member] | Other | Consumer [Member] | Universal Bancorp [Member]
Loans acquired	2,150
Boat/RVs [Member] | Consumer [Member]
Total loans receivable	175,747	169,238
Boat/RVs [Member] | Other | Consumer [Member]
Total loans receivable	175,747	169,238
Boat/RVs [Member] | Other | Consumer [Member] | Universal Bancorp [Member]
Loans acquired	173
Other [Member] | Consumer [Member]
Total loans receivable	6,190	6,188
Other [Member] | Other | Consumer [Member]
Total loans receivable	6,190	6,188
Other [Member] | Other | Consumer [Member] | Universal Bancorp [Member]
Loans acquired	919
Commercial and Industrial [Member] | Commercial Segment [Member]
Total loans receivable	152,276	131,079
Commercial and Industrial [Member] | Other | Commercial Segment [Member]
Total loans receivable	152,276	$ 131,079
Commercial and Industrial [Member] | Other | Commercial Segment [Member] | Universal Bancorp [Member]
Loans acquired	22,690
Receivables Acquired with Deteriorated Credit Quality [Member]
Total loans receivable	$ 312

XML

Derivative Financial Instruments (Narrative) (Details) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 31, 2017
Derivative Financial Instruments [Abstract]
Notional amount of customer-facing swaps	$ 18.1	$ 17.3

XML

Derivative Financial Instruments (Amounts of Derivative Financial Instruments) (Details) - Not Designated as Hedging Instrument [Member] - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Other Assets [Member]
Derivatives, Fair Value [Line Items]
Derviative asset	$ 867	$ 525
Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Derivative liability	$ 867	$ 525

XML

Accumulated Other Comprehensive Income (Loss) (Components of Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Accumulated Other Comprehensive Income (Loss) [Abstract]
Net unrealized gain on securities available for sale	$ (4,556)	$ 529
Net unrealized gain relating to defined benefit plan liability	10	10
Accumulated other comprehensive income before tax	(4,546)	539
Tax benefit (expense)	921	(158)
Net of tax amount	$ (3,625)	$ 381

XML

Accumulated Other Comprehensive Income (Loss) (Reclassification out of Accumulated Other Comprehensive Income (Loss) Alternate) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Related income tax expense	$ (585)	$ (1,025)
Reclassification out of AOCI [Member] | Accumulated Net Unrealized Investment Gain (Loss) [Member]
Related income tax expense	(32)	(44)
Net Income	122	85
Reclassification out of AOCI [Member] | Accumulated Net Unrealized Investment Gain (Loss) [Member] | Other Income [Member]
Other Income	$ 154	$ 129

XML

Fair Values of Financial Instruments (Fair Value Measurement of Assets Measured at Fair Value on Recurring Basis) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale	$ 354,145	$ 277,378
Interest Rate Swap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative asset	867	525
Derivative liability	867	525
Mortgage-backed securities, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale	94,263	67,798
Collateralized mortgage obligations, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale	109,617	87,250
Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale	138,478	110,495
Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale	11,787	11,835
Fair Value, Inputs, Level 1 | Interest Rate Swap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative asset
Derivative liability
Fair Value, Inputs, Level 1 | Mortgage-backed securities, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale
Fair Value, Inputs, Level 1 | Collateralized mortgage obligations, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale
Fair Value, Inputs, Level 1 | Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale
Fair Value, Inputs, Level 1 | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale
Fair Value, Inputs, Level 2 | Interest Rate Swap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative asset	867	525
Derivative liability	867	525
Fair Value, Inputs, Level 2 | Mortgage-backed securities, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale	94,263	67,798
Fair Value, Inputs, Level 2 | Collateralized mortgage obligations, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale	109,617	87,250
Fair Value, Inputs, Level 2 | Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale	138,478	110,495
Fair Value, Inputs, Level 2 | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale	9,066	9,114
Fair Value, Inputs, Level 3 | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, available for sale	$ 2,721	$ 2,721

XML

Fair Values of Financial Instruments (Reconciliation of Recurring Fair Value Measurements Recognized in Balance Sheet using Significant Unobservable (Level Three) Inputs) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Fair Values of Financial Instruments [Abstract]
Beginning balance	$ 2,721	$ 2,588
Total realized and unrealized gains (losses)
Included in net income
Included in other comprehensive income (loss)
Purchases, sales, issuances and settlements
Ending balance	$ 2,721	$ 2,588

XML

Fair Values of Financial Instruments (Quantitative Information about Unobservable Inputs used in Recurring and Nonrecurring Level Three Fair Value Measurements) (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Pooled Trust Preferred Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 2,721	$ 2,721
Valuation Technique	Discounted cash flow	Discounted cash flow
Constant prepayment rate	2.00%	2.00%
Cumulative projected prepayments	40.00%	40.00%
Pooled Trust Preferred Securities | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	7.00%	7.00%
Probability of default	1.70%	1.70%
Projected cures given deferral	0.00%	0.00%
Loss severity	29.30%	29.30%
Pooled Trust Preferred Securities | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	8.00%	8.00%
Probability of default	2.20%	2.20%
Projected cures given deferral	15.00%	15.00%
Loss severity	34.90%	34.90%
Impaired loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 591
Valuation Technique	Third party valuations
Discount to reflect realizable value		8.97%

XML

Fair Values of Financial Instruments (Estimated Fair Values of Financial Instruments) (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2017
Carrying Amount [Member]
Assets
Cash and cash equivalents	$ 41,069	$ 27,341
Interest-bearing deposits	4,627	1,853
Loans held for sale	3,686	4,577
Loans	1,436,889	1,167,758
FHLB stock	12,820	11,183
Interest receivable	5,809	5,282
Interest rate swap asset	867	525
Liabilities
Deposits	1,540,452	1,202,034
FHLB advances	230,546	217,163
Other borrowings	18,110	4,232
Interest payable	593	456
Interest rate swap liability	867	525
Portion at Fair Value Measurement [Member]
Assets
Cash and cash equivalents	41,069	27,341
Interest-bearing deposits	4,627	1,853
Loans held for sale	3,740	4,584
Loans	1,407,437	1,150,005
FHLB stock	12,820	11,183
Interest receivable	5,809	5,282
Interest rate swap asset	867	525
Liabilities
Deposits	1,534,582	1,199,781
FHLB advances	227,428	215,326
Other borrowings	18,000	4,300
Interest payable	593	456
Interest rate swap liability	867	525
Fair Value, Inputs, Level 1 | Portion at Fair Value Measurement [Member]
Assets
Cash and cash equivalents	41,069	27,341
Interest-bearing deposits	4,627	1,853
Liabilities
Deposits	1,083,726	830,877
Fair Value, Inputs, Level 2 | Portion at Fair Value Measurement [Member]
Assets
Loans held for sale	3,740	4,584
FHLB stock	12,820	11,183
Interest receivable	5,809	5,282
Interest rate swap asset	867	525
Liabilities
FHLB advances	227,428	215,326
Other borrowings	18,000	4,300
Interest payable	593	456
Interest rate swap liability	867	525
Fair Value, Inputs, Level 3 | Portion at Fair Value Measurement [Member]
Assets
Loans	1,407,437	1,150,005
Liabilities
Deposits	450,856	368,904
Interest Rate Swap [Member]
Assets
Interest rate swap asset	867	525
Liabilities
Interest rate swap liability	867	525
Interest Rate Swap [Member] | Fair Value, Inputs, Level 1
Assets
Interest rate swap asset
Liabilities
Interest rate swap liability
Interest Rate Swap [Member] | Fair Value, Inputs, Level 2
Assets
Interest rate swap asset	867	525
Liabilities
Interest rate swap liability	$ 867	$ 525