MUTUALFIRST FINANCIAL INC - FORM 10-Q

Attached files

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EX-32 - EXHIBIT 32 - MUTUALFIRST FINANCIAL INC	v464147_ex32.htm
EX-31.2 - EXHIBIT 31.2 - MUTUALFIRST FINANCIAL INC	v464147_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - MUTUALFIRST FINANCIAL INC	v464147_ex31-1.htm

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, 2017
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Act.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨

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

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 8, 2017, there were 7,344,233 shares of the registrant’s common stock outstanding.

MutualFirst Financial, Inc.

Form 10-Q Quarterly Report for the Period Ended March 31, 2017

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	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

Item 4.	Controls and Procedures	36

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosure	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

Signature Page		40

Exhibits		41

MutualFirst Financial, Inc.

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

	March 31,			December 31,
	2017			2016
	(Unaudited)
Assets
Cash and due from banks	$	7,280		$	8,503
Interest-bearing demand deposits		15,024			18,357
Cash and cash equivalents		22,304			26,860
Interest-bearing time deposits		1,905			993
Investment securities available for sale (carried at fair value)		254,966			249,913
Loans held for sale		5,077			4,063
Loans, net of allowance for loan losses of $12,382 at both March 31, 2017 and December 31, 2016		1,154,943			1,157,120
Premises and equipment, net		21,041			21,200
Federal Home Loan Bank stock		11,183			10,925
Deferred tax asset, net		11,769			12,037
Cash value of life insurance		51,866			51,594
Goodwill		1,800			1,800
Other real estate owned and repossessed assets		1,035			1,199
Other assets		13,532			15,429
Total assets	$	1,551,421		$	1,553,133

Liabilities and Stockholders' Equity
Liabilities
Deposits
Noninterest-bearing	$	188,131		$	178,046
Interest-bearing		982,792			975,336
Total deposits		1,170,923			1,153,382
Federal Home Loan Bank advances		218,191			240,591
Other borrowings		4,490			4,189
Other liabilities		15,219			14,933
Total liabilities		1,408,823			1,413,095

Commitments and Contingencies

Stockholders' Equity
Common stock, $.01 par value
Authorized - 20,000,000 shares
Issued and outstanding - 7,344,233 and 7,324,233 shares at March 31, 2017 and December 31, 2016, respectively		73			73
Additional paid-in capital		74,303			74,164
Retained earnings		69,085			67,055
Accumulated other comprehensive loss		(863	)		(1,254	)
Total stockholders' equity		142,598			140,038
Total liabilities and stockholders' equity	$	1,551,421		$	1,553,133

See notes to consolidated condensed financial statements

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Income
(Unaudited)

(In Thousands, Except Share and Per Share Data)

	Three Months Ended March 31,
	2017		2016
Interest and Dividend Income
Loans receivable	$	12,249	$	11,220
Investment securities		1,720		1,689
Federal Home Loan Bank stock		115		105
Deposits with financial institutions		25		20
Total interest and dividend income		14,109		13,034

Interest Expense
Deposits		1,465		1,285
Federal Home Loan Bank advances		886		895
Other		45		92
Total interest expense		2,396		2,272

Net Interest Income		11,713		10,762
Provision for loan losses		200		200
Net Interest Income After Provision for Loan Losses		11,513		10,562

Non-interest Income
Service fee income		1,400		1,374
Net realized gain on sales of available for sale securities		129		118
Commissions		1,196		1,100
Net gains on sales of loans		770		940
Net servicing fees		101		70
Increase in cash value of life insurance		272		284
Gain (loss) on sale of other real estate and repossessed assets		54		(29	)
Other income		202		140
Total non-interest income		4,124		3,997

Non-interest Expenses
Salaries and employee benefits		6,726		6,491
Net occupancy expenses		809		646
Equipment expenses		427		487
Data processing fees		554		489
ATM and debit card expenses		418		380
Deposit insurance		213		234
Professional fees		396		470
Advertising and promotion		312		427
Software subscriptions and maintenance		569		480
Other real estate and repossessed assets		47		72
Other expenses		935		1,240
Total non-interest expenses		11,406		11,416

Income Before Income Tax		4,231		3,143
Income tax expense		1,025		778
Net Income Available to Common Shareholders	$	3,206	$	2,365

Earnings Per Common Share
Basic	$	0.44	$	0.32
Diluted	$	0.43	$	0.31
Dividends Per Common Share	$	0.16	$	0.14

See notes to consolidated condensed financial statements

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Comprehensive Income
(Unaudited)

(In Thousands)

	Three Months Ended March 31,
	2017			2016
Net Income	$	3,206		$	2,365
Other Comprehensive Income
Net unrealized holding gain on securities available for sale		715			3,414
Reclassification adjustment for realized gains included in net income		(129	)		(118	)
Net unrealized gain on derivative used for cash flow hedges		-			(25	)
		586			3,271
Income tax expense related to other comprehensive income		(195	)		(1,119	)
Other comprehensive income, net of tax		391			2,152
Comprehensive Income	$	3,597		$	4,517

See notes to consolidated condensed financial statements

MutualFirst Financial, Inc.

Consolidated Condensed Statement of Changes in Stockholders’ Equity
For the Period Ended March 31, 2017

(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, 2016	$	73	$	74,164	$	67,055		$	(1,254	)	$	140,038
Net income						3,206						3,206
Other comprehensive income, net of taxes									391			391
Stock options, exercised				139								139
Cash dividends, common stock ($.16 per share)						(1,176	)					(1,176	)
Balances March 31, 2017	$	73	$	74,303	$	69,085		$	(863	)	$	142,598

See notes to consolidated condensed financial statements

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Cash Flows
(Unaudited)

(In Thousands, Except Share and Per Share Data)

	Three Months Ended March 31,
	2017			2016
Operating Activities
Net income	$	3,206		$	2,365
Items not requiring cash
Provision for loan losses		200			200
Depreciation and amortization		1,125			1,220
Deferred income tax		73			640
Increase in cash value of life insurance		(272	)		(284	)
Loans originated for sale		(22,548	)		(23,853	)
Proceeds from sales of loans held for sale		22,243			24,826
Net gain on sale of loans		(770	)		(940	)
Net gain on sale of securities, available for sale		(129	)		(118	)
(Gain) loss on sale of other real estate and repossessed assets		(54	)		29
Change in
Interest receivable and other assets		1,441			(64	)
Interest payable and other liabilities		(775	)		1,762
Other adjustments		(58	)		34
Net cash provided by operating activities		3,682			5,817

Investing Activities
Net change in interest-bearing time deposits		(912	)		(980	)
Purchases of securities, available for sale		(15,934	)		(13,577	)
Proceeds from maturities and paydowns of securities, available for sale		6,730			7,788
Proceeds from sales of securities, available for sale		5,681			3,883
Purchase of Federal Home Loan Bank stock		(258	)		-
Net change in loans		1,257			(6,948	)
Purchases of premises and equipment		(201	)		(1,188	)
Proceeds from real estate owned sales		503			502
Proceeds from sale of real estate held for investment		502			-
Proceeds from sale of premises and equipment		-			65
Net cash used in investing activities		(2,632	)		(10,455	)

Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits		16,525			17,868
Certificates of deposit		1,016			4,673
Proceeds from FHLB advances		77,500			64,200
Repayments of FHLB advances		(99,900	)		(71,200	)
Net proceeds (repayments) other borrowings		290			(190	)
Cash dividends		(1,176	)		(1,042	)
Stock options exercised		139			887
Stock repurchased		-			(761	)
Net cash provided by (used in) financing activities		(5,606	)		14,435
Net Change in Cash and Cash Equivalents		(4,556	)		9,797
Cash and Cash Equivalents, Beginning of Period		26,860			20,915
Cash and Cash Equivalents, End of Period	$	22,304		$	30,712

Additional Cash Flows Information
Interest paid	$	2,292		$	2,233
Transfers from loans to foreclosed assets		273			303
Mortgage servicing rights capitalized		61			72
Purchase of securities, due to broker		1,052			-

See notes to consolidated condensed financial statements

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, 2016, filed with the Securities and Exchange Commission on March 16, 2017.

The interim consolidated condensed financial statements at and for the three months ended March 31, 2017 and 2016, have not been audited by independent accountants, but in the opinion of management, reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for such periods. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

The Consolidated Condensed Balance Sheet of the Company as of December 31, 2016 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

Note 2: Earnings Per Share

Earnings per share were computed as follows:

	Three Months Ended March 31,
	2017						2016
	Net Income		Weighted- Average Shares		Per-Share Amount		Net Income		Weighted- Average Shares		Per-Share Amount
Basic Earnings Per Share
Net income	$	3,206		7,332,455	$	0.44	$	2,365		7,466,409	$	0.32
Effect of Dilutive Securities
Stock options		-		148,026				-		149,471
Diluted Earnings Per Share
Net income available and assumed conversions	$	3,206		7,480,481	$	0.43	$	2,365		7,615,880	$	0.31

As of March 31, 2017 and 2016, the exercise price for all options was lower than the average market price of the common shares.

Note 3: Impact of Accounting Pronouncements

In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. However, the amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments are effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoptions is permitted. The Company early adopted this ASU in the first quarter of 2017 and it did not have a material impact on the financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation–Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. This Update includes amendments that currently apply, or may apply in the future, to the Company related to the following: (1) accounting for the difference between the deduction for tax purposes and the amount of compensation cost recognized for financial reporting purposes; (2) classification of excess tax benefits on the statement of cash flows; (3) accounting for forfeitures; (4) accounting for awards partially settled in cash in excess of the employer’s minimum statutory tax withholding requirements; and (5)classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. The amendments in this Update were effective for the Company for annual and interim periods beginning in the first quarter 2017. The ASU provides separate transition provisions for each of the amendments. Initial adoption of this ASU in 2017 did not have a material impact on the Company.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The ASU is intended to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows by specifically addressing eight specific areas. The amendments are effective for the Company for annual and interim periods beginning in the first quarter of 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effects that this ASU will have on its financial statements, specifically the Statement of Cash Flows, and does not expect these effects to be material.

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements. Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. The ASU is intended to provide financial statement users with useful information about the expected credit losses on financial instruments and other commitments to extend credit.

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

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

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

In February 2016, the FASB issued ASU 2016-02, Leases. The objective of the amendment is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. These changes will increase transparency among companies by recognizing lease assets and liabilities on the balance sheet and disclosing additional information about lease arrangements. The amendments in this update are effective for annual and interim periods beginning in the first quarter of 2019. The Company has operating leases in place for some locations as well as equipment and is in the early stages of evaluating the potential impact of adopting this amendment.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this Update require: (1) all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee); (2) an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; and (3) eliminates the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The new guidance is effective for the Company for annual and interim periods beginning in the first quarter of 2018. Current evaluation would indicate that the primary area impacted by the amendments of this ASU will be our investment in Federal Home Loan Bank stock, which is an equity security and does not have a readily determinable fair value. See Note 1 - Significant Accounting Policies, “Federal Home Loan Bank Stock” for information regarding the Company’s investment. The adoption of ASU 2016-01 is not anticipated to have a material effect on the Company’s consolidated financial statements.

Note 4: Investment Securities

The amortized costs and approximate fair values, together with gross unrealized gains and losses on securities, are in the tables below. All mortgage-backed securities and collateralized mortgage obligations held as of March 31, 2017 and December 31, 2016 were guaranteed by government sponsored entities, government corporations or federal agencies.

	March 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale Securities
Mortgage-backed securities	$	88,353	$	738	$	(1,132	)	$	87,959
Collateralized mortgage obligations		72,884		244		(800	)		72,328
Municipal obligations		82,196		1,897		(1,084	)		83,009
Corporate obligations		12,822		91		(1,243	)		11,670
Total investment securities	$	256,255	$	2,970	$	(4,259	)	$	254,966

	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale Securities
Mortgage-backed securities	$	92,871	$	802	$	(1,156	)	$	92,517
Collateralized mortgage obligations		68,621		269		(843	)		68,047
Municipal obligations		77,474		1,716		(1,508	)		77,682
Corporate obligations		12,822		78		(1,233	)		11,667
Total investment securities	$	251,788	$	2,865	$	(4,740	)	$	249,913

The amortized cost and fair value of securities available for sale at March 31, 2017, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale
Description Securities	Amortized Cost		Fair Value
Security obligations due
Within one year	$	-	$	-
One to five years		5,396		5,389
Five to ten years		17,203		17,761
After ten years		72,419		71,529
		95,018		94,679
Mortgage-backed securities		88,353		87,959
Collateralized mortgage obligations		72,884		72,328
Totals	$	256,255	$	254,966

Proceeds from sales of securities available for sale for the three months ended March 31, 2017 and 2016 were $5.7 million and $3.9 million, respectively. Gross gains of $129,000 and $118,000 for the three months ended March 31, 2017 and 2016, respectively, were recognized on those sales. There were no gross losses recognized on the sales of securities for the three months ended March 31, 2017 or 2016.

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, 2017 and December 31, 2016 was $146.9 million and $143.8 million, respectively, which was approximately 57.6% of the Company’s investment portfolio at each of 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 quarter of 2017 and 2016, 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, 2017 and December 31, 2016:

	March 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
Mortgage-backed securities	$	61,001	$	(1,132	)	$	-	$	-		$	61,001	$	(1,132	)
Collateralized mortgage obligations		44,904		(639	)		4,540		(161	)		49,444		(800	)
Municipal obligations		29,070		(1,083	)		338		(1	)		29,408		(1,084	)
Corporate obligations		-		-			7,067		(1,243	)		7,067		(1,243	)
Total temporarily impaired securities	$	134,975	$	(2,854	)	$	11,945	$	(1,405	)	$	146,920	$	(4,259	)

	December 31, 2016
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for Sale
Mortgage-backed securities	$	58,056	$	(1,156	)	$	-	$	-		$	58,056	$	(1,156	)
Collateralized mortgage obligations		41,769		(683	)		4,688		(160	)	$	46,457	$	(843	)
Municipal obligations		31,907		(1,507	)		337		(1	)		32,244		(1,508	)
Corporate obligations		-		-			7,076		(1,233	)		7,076		(1,233	)
Total temporarily impaired securities	$	131,732	$	(3,346	)	$	12,101	$	(1,394	)	$	143,833	$	(4,740	)

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, 2017.

Municipals

The unrealized losses on the Company’s investments in securities of state and political subdivisions were caused by changes in interest rates and illiquidity. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The Company does not intend to sell 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, 2017.

Corporate Obligations

The Company’s unrealized losses on investments in corporate obligations primarily relates to two investments in pooled trust preferred securities. The unrealized losses were primarily caused by (1) a decrease in performance and regulatory capital resulting from exposure to subprime mortgages and (2) a sector downgrade by industry analysts. The Company recognized losses, in 2011 and earlier, equal to the credit losses for these securities, establishing a new, lower amortized cost basis. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. Because the Company does not intend to sell these investments and it is likely that the Company will not be required to sell the investments before recovery of its new, lower amortized cost basis, which may be at maturity, it does not consider the remainder of these investments to be other-than-temporarily impaired at March 31, 2017.

Pooled Trust Preferred Securities. The Company has invested in pooled trust preferred securities. At March 31, 2017, the current book balance of our pooled trust preferred securities was $3.8 million. The original par value of these securities was $4.0 million prior to the OTTI write-downs in 2011 and earlier. OTTI taken on trust preferred securities previously was the result of deterioration in the performance of the underlying collateral. The deterioration was the result of increased defaults and deferrals of dividend payments in that year, creating credit impairment along with weakening financial performance of performing collateral, increasing the risk of future deferrals of dividends and defaults. No additional OTTI was determined in the first quarter of 2017. All pooled trust preferred securities owned by the Company are exempt from the Volcker Rule.

The following table provides additional information related to the Company’s investment in pooled trust preferred securities as of March 31, 2017:

Deal Name	Class	Original Par		Book Value		Fair Value		Unrealized loss			Realized Losses YTD		Lowest Current Rating	Number of Banks / Insurance Cos. Currently Performing		Total Number of Banks and Insurance Cos. In Issuance (Unique)		Actual Deferrals/ Defaults (as a % of original collateral)			Total Projected Defaults (as a % of performing collateral) ⁽¹⁾			Excess subordination (after taking into account best estimate of future deferrals/ defaults) ⁽²⁾
	(Dollars in Thousands)
Alesco Preferred Funding IX	A1	$	1,000	$	919	$	563	$	(356	)	$	-	CCC-		44		49		4.20	%		9.55	%		54.52	%
U.S. Capital Funding I	B3		3,000		2,891		2,025		(866	)		-	Caa1		29		33		7.95	%		6.19	%		12.69	%
		$	4,000	$	3,810	$	2,588	$	(1,222	)	$	-

(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.

Note 5: Loans and Allowance

Classes of loans at March 31, 2017 and December 31, 2016 include:

	March 31,			December 31,
	2017			2016
Real estate
Commercial	$	301,840		$	302,577
Commercial construction and development		26,840			22,453
Consumer closed end first mortgage		475,347			478,848
Consumer open end and junior liens		69,798			71,222
Total real estate loans		873,825			875,100
Other loans
Consumer loans
Auto		18,436			18,939
Boat/RVs		145,656			141,602
Other		5,671			5,892
Commercial and industrial		127,799			131,103
Total other loans		297,562			297,536
Total loans		1,171,387			1,172,636
Undisbursed loans in process		(9,636	)		(8,691	)
Unamortized deferred loan costs, net		5,574			5,557
Allowance for loan losses		(12,382	)		(12,382	)
Net loans	$	1,154,943		$	1,157,120

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

Commercial

Real estate

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

Construction and Development

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

Commercial and Industrial

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

Consumer Real Estate and Other Consumer Loans

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

Nonaccrual Loans and Past Due Loans

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

All interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual 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, 2017 and December 31, 2016 are as follows:

	March 31,		December 31,
	2017		2016
Real estate
Commercial	$	1,054	$	912
Commercial construction and development		-		-
Consumer closed end first mortgage		3,179		3,626
Consumer open end and junior liens		286		335
Consumer loans
Auto		5		5
Boat/RVs		128		224
Other		34		24
Commercial and industrial		86		18
Total nonaccrual loans	$	4,772	$	5,144

An age analysis of the Company’s past due loans, segregated by class of loans, as of March 31, 2017 and December 31, 2016 are as follows:

	March 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	$	2,336	$	61	$	931	$	3,328	$	298,512	$	301,840	$	-
Commercial construction and development		279		-		-		279		26,561		26,840		-
Consumer closed end first mortgage		3,555		628		2,834		7,017		468,330		475,347		-
Consumer open end and junior liens		170		121		215		506		69,292		69,798		-
Consumer loans
Auto		31		12		2		45		18,391		18,436		-
Boat/RVs		794		147		52		993		144,663		145,656		-
Other		53		3		21		77		5,594		5,671		-
Commercial and industrial		403		13		81		497		127,302		127,799		-
Total	$	7,621	$	985	$	4,136	$	12,742	$	1,158,645	$	1,171,387	$	-

	December 31, 2016
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans 90 Days Past Due and Accruing
Real estate
Commercial	$	854	$	142	$	785	$	1,781	$	300,796	$	302,577	$	-
Commercial construction and development		-		-		-		-		22,453		22,453		-
Consumer closed end first mortgage		6,789		1,554		3,675		12,018		466,830		478,848		237
Consumer open end and junior liens		512		166		304		982		70,240		71,222		-
Consumer loans
Auto		103		25		5		133		18,806		18,939		-
Boat/RVs		1,376		305		213		1,894		139,708		141,602		-
Other		89		26		13		128		5,764		5,892		-
Commercial and industrial		497		32		8		537		130,566		131,103		-
Total	$	10,220	$	2,250	$	5,003	$	17,473	$	1,155,163	$	1,172,636	$	237

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, 2017 and 2016 and the year ended December 31, 2016.

	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, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	665	$	665	$	-	$	2,207	$	68
Commercial construction and development		822		822		-		874		40
Consumer closed end first mortgage		1,869		1,869		-		1,328		-
Consumer open end and junior liens		-		-		-		193		-
Commercial and industrial		187		187		-		204		1

Loans with a specific valuation allowance
Real estate
Commercial		214		214		100		416		-

Total
Real estate
Commercial	$	879	$	879	$	100	$	2,623	$	68
Commercial construction and development	$	822	$	822	$	-	$	874	$	40
Consumer closed end first mortgage	$	1,869	$	1,869	$	-	$	1,328	$	-
Consumer open end and junior liens	$	-	$	-	$	-	$	193	$	-
Commercial and industrial	$	187	$	187	$	-	$	204	$	1

Total	$	3,757	$	3,757	$	100	$	5,222	$	109

	March 31, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
Real estate
Commercial	$	3,150	$	3,150	$	-	$	3,172	$	23
Commercial construction and development		859		859		-		934		12
Consumer closed end first mortgage		1,126		1,126		-		1,126		-
Consumer open end and junior liens		485		485		-		483		-
Commercial and industrial		208		208		-		212		-

Loans with a specific valuation allowance
Real estate
Commercial		517		517		100		596		-

Total
Real estate
Commercial	$	3,667	$	3,667	$	100	$	3,768	$	23
Commercial construction and development	$	859	$	859	$	-	$	934	$	12
Consumer closed end first mortgage	$	1,126	$	1,126	$	-	$	1,126	$	-
Consumer open end and junior liens	$	485	$	485	$	-	$	483	$	-
Commercial and industrial	$	208	$	208	$	-	$	212	$	-

Total	$	6,345	$	6,345	$	100	$	6,523	$	35

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, 2017.

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.

Consumer 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.

	March 31, 2017
	Commercial								Consumer
	Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial	$	295,099	$	3,267	$	3,449	$	25							$	301,840
Commercial construction and development		25,769		279		792		-								26,840
Consumer closed end first mortgage									$	470,138	$	-	$	5,209		475,347
Consumer open end and junior liens										69,421		-		377		69,798

Other loans
Consumer loans
Auto										18,428		-		8		18,436
Boat/RVs										145,472		-		184		145,656
Other										5,606		-		65		5,671
Commercial and industrial		125,422		2,287		90		-								127,799
	$	446,290	$	5,833	$	4,331	$	25	$	709,065	$	-	$	5,843	$	1,171,387

	December 31, 2016
	Commercial								Consumer
	Pass		Special Mention		Substandard		Doubtful		Pass		Special Mention		Substandard		Total
Real estate
Commercial	$	295,548	$	3,705	$	3,297	$	27							$	302,577
Commercial construction and development		21,782		254		417		-								22,453
Consumer closed end first mortgage									$	473,329	$	-	$	5,519		478,848
Consumer open end and junior liens										70,769		-		453		71,222

Other loans
Consumer loans
Auto										18,931		-		8		18,939
Boat/RVs										141,294		-		308		141,602
Other										5,859		-		33		5,892
Commercial and industrial		128,436		2,513		154		-								131,103
	$	445,766	$	6,472	$	3,868	$	27	$	710,182	$	-	$	6,321	$	1,172,636

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, 2017 and 2016, 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, 2017
	Commercial		Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	7,358	$	2,303		$	2,721		$	12,382
Provision charged 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

	Three Months Ended March 31, 2016
	Commercial			Mortgage			Consumer			Total
Allowance for loan losses:
Balance, beginning of period	$	7,090		$	2,683		$	2,868		$	12,641
Provision charged to expense		120			62			18			200
Losses charged off		(4	)		(120	)		(138	)		(262	)
Recoveries		2			4			85			91
Balance, end of period	$	7,208		$	2,629		$	2,833		$	12,670

The following tables provide a breakdown of the allowance for loan losses and loan portfolio balances by segment as of March 31, 2017 and 2016, and December 31, 2016.

	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

	March 31, 2016
	Commercial		Mortgage		Consumer		Total
Allowance balances
Individually evaluated for impairment	$	100	$	-	$	-	$	100
Collectively evaluated for impairment		7,108		2,629		2,833		12,570
Total allowance for loan losses	$	7,208	$	2,629	$	2,833	$	12,670
Loan balances
Individually evaluated for impairment	$	4,734	$	1,126	$	485	$	6,345
Collectively evaluated for impairment		380,473		486,263		218,527		1,085,263
Gross loans	$	385,207	$	487,389	$	219,012	$	1,091,608

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

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the net realizable 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, 2017, the Company had a number of loans that were modified in troubled debt restructurings. The modification of terms of such loans included one or a combination of the following: an extension of maturity or a reduction of the stated interest rate.

The following tables describe troubled debts restructured during the three month periods ended March 31, 2017 and 2016:

	Three Months Ended
	March 31, 2017						March 31, 2016
	No. of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance		No. of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance
Real estate
Consumer closed end first mortgage		1	$	65	$	67		5	$	419	$	428

Other loans
Consumer loans
Auto		-		-		-		1		4		7
Boat/RVs		-		-		-		2		48		48
Commercial and industrial		1		72		72		1		83		83

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

Newly restructured loans by type for the three months ended March 31, 2017 and 2016 are as follows:

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

Other loans
Commercial and industrial		-		72		-		72

	Three Months Ended March 31, 2016
	Rate		Term		Combination		Total Modification
Real estate
Consumer closed end first mortgage	$	-	$	-	$	428	$	428

Other loans
Consumer loans
Auto		-		-		7		7
Boat/RVs		-		48		-		48
Commercial and industrial		-		83		-		83

There were no defaults on loans modified as troubled debt restructurings made in the three months ended March 31, 2017 and 2016. Defaults are defined as any loans that become 90 days past due.

At March 31, 2017, the Company had residential real estate held for sale as a result of foreclosure totaling $403,000 and real estate in the process of foreclosure of $1.6 million.

Note 6. 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, 2017 and December 31, 2016 was approximately $14.5 million and $14.6 million, respectively.

The following table shows the amounts of derivative financial instruments at March 31, 2017 and December 31, 2016.

	Asset Derivatives
		Fair Value					Fair Value
	Balance Sheet	March 31,		December 31,		Balance Sheet	March 31,		December 31,
	Location	2017		2016		Location	2017		2016
Derivatives not designated as hedging instruments:
Interest rate contracts	Other assets	$	561	$	553	Other liabilities	$	561	$	553

Note 7: Accumulated Other Comprehensive Income (Loss)

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

	March 31,			December 31,
	2017			2016
Net unrealized loss on securities available-for-sale	$	(423	)	$	(1,009	)
Net unrealized loss on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income		(866	)		(866	)
Net unrealized gain relating to defined benefit plan liability		30			30
		(1,259	)		(1,845	)
Tax benefit		396			591
Net of tax amount	$	(863	)	$	(1,254	)

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, 2017 and 2016.

	Amount Reclassified from Accumulated Other Comprehensive Income For the Three Months Ended
	March 31,
Details about Accumulated Other Comprehensive Income Components	2017			2016			Affected Line Item in the Statements of Income
Unrealized gains on available-for-sale securities
Realized securities gains reclassified into income	$	129		$	118		Total non-interest income - net realized gains on sale of available-for-sale securities
Related income tax expense		(44	)		(40	)	Income tax expense

Total reclassifications for the period, net of tax	$	85		$	78

Note 8: Fair Values of Financial Instruments

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

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

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

Level 3

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

Items Measured at Fair Value on a Recurring Basis

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

Available-for-Sale Securities

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

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

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

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
March 31, 2017
Mortgage-backed securities	$	87,959	$	-	$	87,959	$	-
Collateralized mortgage obligations		72,328		-		72,328		-
Municipal obligations		83,009		-		83,009		-
Corporate obligations		11,670		-		9,082		2,588
Available-for-sale securities	$	254,966	$	-	$	252,378	$	2,588

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

The following is a reconciliation of the beginning and ending balances for the three months ended March 31, 2017 and 2016 of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:

	Three Months Ended
	March 31,
	2017		2016
Beginning balance	$	2,588	$	2,534
Total realized and unrealized gains (losses)
Included in net income		-		-
Included in other comprehensive income (loss)		-		-
Purchases, issuances and settlements		-		-
Ending balance	$	2,588	$	2,534
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-	$	-

Items Measured at Fair Value on a Non-Recurring Basis

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

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

March 31, 2017	Fair Value		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,588	Discounted cash flow	Discount rate		7.0 - 8.0	%
				Constant prepayment rate		2.0	%
				Cumulative projected prepayments		40.0	%
				Probability of default		1.7 - 2.2	%
				Projected cures given deferral		0 - 15.0	%
				Loss severity		32.5 - 38.7	%

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

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

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

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

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

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

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

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

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

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

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

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

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

					Fair Value Measurements Using
March 31, 2017	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	22,304	$	22,304	$	22,304	$	-	$	-
Interest-bearing time deposits		1,905		1,905		1,905		-		-
Loans held for sale		5,077		5,128		-		5,128		-
Loans, net		1,154,943		1,137,064		-		-		1,137,064
FHLB stock		11,183		11,183		-		11,183		-
Interest receivable		4,372		4,372		-		4,372		-
Liabilities
Deposits		1,170,923		1,170,835		797,167		-		373,668
FHLB advances		218,191		217,575		-		217,575		-
Other borrowings		4,490		4,528		-		4,528		-
Interest payable		454		454		-		454		-

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

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, 2016, which was filed with the SEC on March 16, 2017.

MutualFirst is a Maryland corporation and a bank holding company headquartered in Muncie, Indiana, with operations in Allen, Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash counties in Indiana. It owns MutualBank, an Indiana commercial bank with 27 full-service branches in Indiana, trust offices in Fishers and Crawfordsville, Indiana and a loan origination office in New Buffalo, Michigan. MutualFirst also owns MutualFirst Risk Management, Inc., a captive insurance company based in Nevada, and as of the first quarter 2016, Mutual Risk Advisors, a consulting firm based in Indiana. 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 and businesses, including some brokered deposits, and investing those funds primarily in loans secured by consumer closed end first mortgages and consumer open end and junior liens on owner-occupied, one- to four-family residences, a variety of other consumer loans, loans secured by commercial real estate, commercial construction and development and commercial and industrial loans. Funds not invested in loans generally are invested in investment securities, including mortgage-backed, mortgage-related, and municipal. We also obtain funds from FHLB advances and other borrowings.

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

First Quarter Highlights. At March 31, 2017, we had $1.6 billion in assets, $1.2 billion in net loans, $1.2 billion in deposits and $142.6 million in stockholders’ equity. The Company’s total risk-based capital ratio at March 31, 2017 was 13.4%, exceeding the 10.0% requirement for a well-capitalized institution. Tangible common equity, as a percentage of tangible assets, increased to 9.1% as of March 31, 2017 compared to 8.9% and 9.2% at December 31, 2016 and March 31, 2016, respectively. For the quarter ended March 31, 2017, net income was $3.2 million, or $0.43 diluted earnings per common share, compared with net income of $2.4 million, or $0.31 diluted earnings per common share for the quarter ended March 31, 2016.

Financial highlights for the quarter ended March 31, 2017 included:

Deposits increased $17.5 million, or 6.1% on an annualized basis in the first quarter of 2017.

Tangible book value per common share was $19.13 as of March 31, 2017 compared to $18.82 as of December 31, 2016.

Net interest income for the first quarter of 2017 increased by $144,000 on a linked quarter basis and increased by $951,000 compared to the first quarter of 2016.

Net interest margin was 3.21% for the first quarter of 2017 compared to 3.20% in the fourth quarter of 2016 and 3.13% in the first quarter of 2016. Tax equivalent net interest margin was 3.32% for the first quarter of 2017 compared to 3.30% in the fourth quarter of 2017 and 3.22% in the first quarter of 2016.

Provision for loan losses decreased in the first quarter of 2017 by $50,000 compared to the linked quarter and was the same as the first quarter of 2016.

Non-interest income in the first quarter of 2017 decreased by $342,000 on a linked quarter basis and increased by $127,000 when compared to the first quarter of 2016.

Non-interest expense decreased in the first quarter of 2017 by $74,000 on a linked quarter basis and decreased by $10,000 when compared to the first quarter of 2016.

Efficiency ratio was 72.0% in the first quarter of 2017 compared to 77.4% in the first quarter of 2016.

Four financial centers were closed during the first quarter of 2017.

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, 2016, contains a summary of our management’s strategic plan for 2015-2019. The financial highlights of our strategic progress during the quarter include:

Core deposits grew $16.5 million in the first quarter of 2017 and now make up 68.1% of the deposit portfolio, up from 67.7% at December 31, 2016.

Commission income from wealth and investment services increased $96,000, or 8.7%, during the first quarter 2017 compared to the same period in 2016.

Critical Accounting Policies

Note 1 to the Consolidated Financial Statements in Item 8 of the Form 10-K for the year ended December 31, 2016 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.

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

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

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

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

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

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

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

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

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

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

Deferred Tax Asset. The Company has evaluated its deferred tax asset to determine if it is more likely than not that the asset will be utilized in the future. The Company’s most recent evaluation has determined that, except for the amounts represented by the valuation allowance in Note 15 to the Consolidated Financial Statements in Item 8 of the Form 10-K for the year ended December 31, 2016, the Company will more likely than not be able to utilize the remaining deferred tax asset. As of year-end 2016, the Company had generated average annual positive pre-tax pre-provision earnings of $16.4 million, or 1.1% of pre-tax pre-provision ROA over the previous five years. This level of earnings, if maintained in the future, would be sufficient to utilize portions of the operating losses, tax credit carryforwards and temporary tax differences over the allowable periods. The analysis as of March 31, 2017, supports no additional valuation reserve is needed.

The valuation allowances established are the result of net operating losses for state franchise tax purposes totaling $23.0 million. See Note 15 to the Consolidated Financial Statements in Item 8 of the Form 10-K for the year ended December 31, 2016.

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

Forward-Looking Statements

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

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

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, 2017 were $1.6 billion, reflecting a $1.7 million decrease since December 31, 2016, primarily as a result of a $2.2 million decrease in net loans. Average interest-earning assets increased $12.5 million, or 0.9%, to $1.5 billion for the three months ended March 31, 2017 compared to the three months ended December 31, 2016, reflecting an increase in the average loan portfolio of $11.4 million. Average interest-bearing liabilities remained relatively unchanged with a small decrease of $167,000, at March 31, 2017 compared to December 31, 2016. Although the change was minor in total, we did see an increase in average total deposits of $9.6 million offset by a decrease in average borrowings of $9.8 million. Average stockholders’ equity decreased by $192,000, or 0.1%, during the three months ended March 31, 2017 compared the three months ended December 31, 2016 due to accumulated other comprehensive losses on investments securities available-for-sale earlier in the quarter.

Loans. 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
	2017		2016		Change			Change

Real estate
Commercial	$	301,840	$	302,577	$	(737	)		(0.24	)%
Commercial construction and development		26,840		22,453		4,387			19.54
Consumer closed end first mortgage		475,347		478,848		(3,501	)		(0.73	)
Consumer open end and junior liens		69,798		71,222		(1,424	)		(2.00	)
Total real estate loans		873,825		875,100		(1,275	)		(0.15	)

Consumer loans
Auto		18,436		18,939		(503	)		(2.66	)
Boat/RV		145,656		141,602		4,054			2.86
Other		5,671		5,892		(221	)		(3.75	)
Total consumer other		169,763		166,433		3,330			2.00
Commercial and industrial		127,799		131,103		(3,304	)		(2.52	)
Total other loans		297,562		297,536		26			0.01

Total Gross Loans	$	1,171,387	$	1,172,636	$	(1,249	)		(0.11	)%

The gross loan portfolio declined by $1.2 million, or 0.1% primarily due to seasonality and a couple of large payoffs in the commercial loan portfolio. Despite loan balances remaining relatively flat, primarily due to the large payoffs, production was stronger in the first quarter of 2017 compared to the first quarter of 2016. The Company’s strategy to increase commercial and consumer loans remains a primary focus as the current commercial loan pipeline is approximately 50% greater as of March 31, 2017 than December 31, 2016. 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 Company continues to sell longer term fixed-rate mortgage loans to reduce related interest rate risk.

Delinquencies and Non-performing Assets. As of March 31, 2017, our total loans delinquent 30-to-89 days were $8.6 million or 0.7% of total loans, down from $12.5 million or 1.1% of total loans at the year-end of 2016. This was primarily due to a decrease in consumer mortgage loans.

At March 31, 2017, our non-performing assets totaled $5.8 million or 0.37% of total assets, compared to $6.6 million or 0.42% of total assets at December 31, 2016. This $774,000, or 11.8% decrease was primarily due to a reduction in non-performing consumer closed end first mortgage loans. The table below sets forth the amounts and categories of non-performing assets at the dates indicated.

	March 31,		December 31,		Amount			Percent
	2017		2016		Change			Change

Non-accruing loans	$	4,772	$	5,144	$	(372	)		(7.23	)%
Accruing loans delinquent 90 days		-		237		(237	)		(100.00	)
Foreclosed assets		1,034		1,199		(165	)		(13.76	)
Total	$	5,806	$	6,580	$	(774	)		(11.76	)%

The Company continues to diligently monitor and write down loans that appear to have irreversible weakness. The Company works to ensure possible problem loans have been identified and steps have been taken to reduce loss by restructuring loans to improve cash flow or by increasing collateral. In addition to the decrease in non-performing assets, the Company has seen improvement during the first quarter of 2017 in total classified assets. Total classified assets decreased by 1.6% from $11.4 million at December 31, 2016 to $11.2 million at March 31, 2017 due to improvements in the economy in the local communities we serve.

At March 31, 2017, foreclosed real estate totaled $403,000. The Company continues to experience a decrease in this area as overall real estate owned sales volumes are up and the number of foreclosures is down. At March 31, 2017, all foreclosed real estate owned was in consumer residential real estate. As of March 31, 2017, the Company also held $631,000 in other repossessed assets, such as autos, boats, RVs and horse trailers.

Allowance for Loan Losses. Allowance for loan losses remained constant at $12.4 million as of March 31, 2017 compared to December 31, 2016. The allowance for loan losses to non-performing loans as of March 31, 2017 was 259.5% compared to 230.1% as of December 31, 2016. The allowance for loan losses to total loans as of March 31, 2017 was 1.06%, the same as of December 31, 2016. Non-performing loans to total loans at March 31, 2017 were 0.41% compared to 0.46% at December 31, 2016. Non-performing assets to total assets were 0.37% at March 31, 2017 compared to 0.42% at December 31, 2016.

Deposits. Deposits increased by $17.5 million as of March 31, 2017 compared to December 31, 2016. The increase in deposits was a result of an increase in core deposits of $16.5 million and an increase of $1.0 million in certificates of deposit.

	At
	March 31, 2017					December 31, 2016
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Type of Account:
Non-interest Checking	$	188,131		0.00	%	$	178,046		0.00	%
Interest-bearing NOW		292,918		0.32			292,977		0.27
Savings		139,962		0.01			136,314		0.01
Money Market		176,156		0.28			173,305		0.26
Certificates of Deposit		373,756		1.23			372,740		1.19
Total	$	1,170,923		0.52	%	$	1,153,382		0.49	%

Borrowings. Total borrowings decreased to $222.7 million at March 31, 2017, down $22.1 million, or 9.0%, since year-end 2016 primarily due to a $22.4 million decrease in FHLB advances. This decrease was primarily due to growth in deposit balances. Other borrowings, consisting of a subordinated debenture and fed funds borrowings, increased $301,000 to $4.5 million at March 31, 2017.

Stockholders’ Equity. Stockholders’ equity was $142.6 million at March 31, 2017, an increase of $2.6 million from December 31, 2016. The increase was primarily due to net income available to common shareholders of $3.2 million, an increase in accumulated other comprehensive income of $391,000 and an increase of $139,000 due to exercises of stock options. These increases were partially offset by common stock cash dividends paid of $1.2 million during the first quarter of 2017. The Company’s tangible book value per common share as of March 31, 2017 increased to $19.13 compared to $18.82 as of December 31, 2016 and the tangible common equity ratio increased to 9.07% as of March 31, 2017 compared to 8.89% as of December 31, 2016. MFSF’s and the Bank’s risk-based capital ratios were well in excess of “well-capitalized” levels as defined by all regulatory standards as of March 31, 2017.

Comparison of Results of Operations for the Three Months Ended March 31, 2017 and 2016.

General. Net income for the three months ended March 31, 2017 was $3.2 million, or $0.43 diluted earnings per common share compared to net income of $2.4 million, or $0.31 diluted earnings per common share for the three months ended March 31, 2016. Annualized return on average assets was 0.82% and annualized return on average tangible common equity was 9.23% for the first quarter of 2017 compared to 0.63% and 6.92% respectively, for the same period of last year.

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

	Three Months Ended
	March 31, 2017								March 31, 2016
	Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate			Average Outstanding Balance			Interest Earned/Paid		Average Yield/Rate
Interest-Earning Assets:
Interest -bearing deposits	$	21,425		$	25		0.47	%	$	24,212		$	20		0.33	%
Investment securities, available for sale ⁽¹⁾:
MBS/CMO		161,169			998		2.48			187,688			1,137		2.42
Other		91,578			722		3.15			69,202			552		3.19
Loans receivable		1,172,551			12,249		4.18			1,084,263			11,220		4.14
Stock in FHLB of Indianapolis		11,117			115		4.14			10,482			105		4.01
Total interest-earning assets ⁽¹⁾		1,457,840			14,109		3.87			1,375,847			13,034		3.79
Non-interest earning assets, net of allowance for loan losses and unrealized gain/loss		97,384								115,960
Total assets	$	1,555,224							$	1,491,807

Interest-Bearing Liabilities:
Demand and NOW accounts	$	292,641			200		0.27		$	264,322			150		0.23
Savings deposits		139,435			4		0.01			134,050			3		0.01
Money market accounts		175,048			125		0.29			164,116			108		0.26
Certificate accounts		385,155			1,137		1.18			355,222			1,024		1.15
Total deposits		992,279			1,466		0.59			917,710			1,285		0.56
Borrowings		229,919			930		1.62			237,921			987		1.66
Total interest-bearing liabilities		1,222,198			2,396		0.78			1,155,631			2,272		0.79
Non-interest bearing deposit accounts		176,455								181,849
Other liabilities		15,489								15,155
Total liabilities		1,414,142								1,352,635
Stockholders' equity		141,082								139,172
Total liabilities and stockholders' equity	$	1,555,224							$	1,491,807

Net earning assets	$	235,642							$	220,216
Net interest income				$	11,713							$	10,762
Net interest rate spread ⁽³⁾							3.09	%							3.00	%
Net interest margin ⁽³⁾							3.21	%							3.13	%
Net interest margin, tax equivalent ^{(2) (3)}							3.32	%							3.22	%
Average interest-earning assets to
average interest-bearing liabilities		119.28	%							119.06	%

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

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

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

Interest Income. Total interest income increased $1.1 million, or 8.2%, to $14.1 million during the three months ended March 31, 2017 from $13.0 million during the same period in 2016. The increase was a result of an increase of $82.0 million in average earning assets due to an increase in the average loan portfolio of $88.3 million in combination with an increase of eight basis points in the average interest rate for the quarter ended March 31, 2017 compared to the same period in 2016.

Interest Expense. Interest expense increased $124,000, or 5.5%, to $2.4 million during the three months ended March 31, 2017 compared to the same period in 2016. The primary reason for this increase was an increase of $74.6 million in average interest-bearing deposits which was partially offset by a decrease in average interest-bearing borrowings of $8.0 million. The increase in interest-bearing deposits was due to our focus on core deposit growth in combination with the need for loan funding.

Net Interest Income and Net Interest Margin. Net interest income before the provision for loan losses increased $951,000 for the quarter ended March 31, 2017 compared to the same period in 2016. The increase in net interest income was a result of an increase of $82.0 million in average interest earning assets, due to an increase of $88.3 million in average loans, and an increase of eight basis points in net interest margin to 3.21%. On a linked quarter basis, net interest income before the provision for loan losses increased $144,000 as net interest margin increased by one basis point and average interest earning assets increased by $12.5 million, primarily due to increases in the average loan portfolio. For more information on our asset/liability management especially as it relates to interest rate risk, see “Item 7A - Quantitative and Qualitative Disclosures About Market Risk” in the Form 10-K for the year ended December 31, 2016.

Provision for Loan Losses. Provision for loan losses in the first quarter of 2017 was $200,000, the same as last year’s comparable period. Provision for loan losses was calculated based on management’s ongoing evaluation of the adequacy of the allowance for loan losses, which is partially attributable to net charge offs of $200,000, or 0.07% of total average loans on an annualized basis, in the first quarter of 2017 compared to net charge offs of $171,000, or 0.06% of total average loans on an annualized basis, in the first quarter of 2016.

Non-Interest Income. Non-interest income for the first quarter of 2017 was $4.1 million, an increase of $127,000 compared to the first quarter of 2016.

	Three Months Ended March 31,					Amount			Percent
	2017		2016			Change			Change
Service fee income	$	1,400	$	1,374		$	26			1.89	%
Net realized gain on sale of securities		129		118			11			9.32
Commissions		1,196		1,100			96			8.73
Net gains on sales of loans		770		940			(170	)		(18.09	)
Net servicing fees		101		70			31			44.29
Increase in cash surrender value of life insurance		272		284			(12	)		(4.23	)
Gain (loss) on sale of other real estate and repossessed assets		54		(29	)		83			(286.21	)
Other income		202		140			62			44.29
Total	$	4,124	$	3,997		$	127			3.18	%

Increases in non-interest income included an increase of $96,000 in commission income due to increases in our trust and wealth management portfolios, an increase of $83,000 in gains on sale of other real estate and repossessed assets, and an increase of $26,000 in service fee income. These increases were partially offset by a decrease of $170,000 in gain on sale of loans due to fewer loan sales compared to the first quarter of 2016. On a linked quarter basis, non-interest income decreased $342,000 primarily due to a decrease of $307,000 in service fee income generated from deposit accounts due to fourth quarter seasonality, which is typically the highest of the year.

Non-Interest Expense. Non-interest expenses decreased $10,000, to $11.4 million, for the first quarter of 2017.

	Three Months Ended March 31,				Amount			Percent
	2017		2016		Change			Change
Salaries and employee benefits	$	6,726	$	6,491	$	235			3.62	%
Net occupancy expenses		809		646		163			25.23
Equipment expenses		427		487		(60	)		(12.32	)
Data processing fees		554		489		65			13.29
ATM and debit card expense		418		380		38			10.00
Deposit insurance		213		234		(21	)		(8.97	)
Professional fees		396		470		(74	)		(15.74	)
Advertising and promotion		312		427		(115	)		(26.93	)
Software subscriptions and maintenance		569		480		89			18.54
Other real estate and repossessed assets		47		72		(25	)		(34.72	)
Other expenses		935		1,240		(305	)		(24.60	)
Total	$	11,406	$	11,416	$	(10	)		(0.09	)%

The decrease was primarily due to a decrease of $305,000 in other expenses and a decrease of $74,000
in professional fees primarily due to one-time expenses setting up our captive insurance company in the first quarter of 2016 that were not repeated in the first quarter of 2017. These decreases were offset by an increase of $235,000 in salaries and benefits primarily due to general compensation increases and an increase of $163,000 in occupancy expense due to a loss of rental income from an office building sold in the fourth quarter of 2016. On a linked quarter basis, non-interest expense decreased $74,000 partially due to a decrease in salaries and benefits primarily due to reduced health insurance expenses.

Income Tax Expense. The effective tax rate for the first quarter of 2017 was 24.2% compared to 24.8% in the same quarter of 2016. The reason for the decline was due to an increase in tax free income partially due to an increase in holdings of tax free municipal securities in the investment portfolio.

Reconciliation of Non-GAAP Financial Measures

The report on Form 10-Q contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (“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 following table.

	At and for the Three Months Ended
	March 31,			December 31,			March 31,
	2017			2016			2016
Total Stockholders' Equity (GAAP)	$	142,598		$	140,038		$	140,798
Less: Intangible Assets		(2,107	)		(2,191	)		(2,491	)
Tangible common equity (non-GAAP)	$	140,491		$	137,847		$	138,307

Total assets (GAAP)	$	1,551,421		$	1,553,133		$	1,499,232
Less: Intangible Assets		(2,107	)		(2,191	)		(2,491	)
Tangible assets (non-GAAP)	$	1,549,314		$	1,550,942		$	1,496,741

Tangible common equity to tangible assets (non-GAAP)		9.07	%		8.89	%		9.24	%

Book value per common share (GAAP)	$	19.42		$	19.12		$	18.87
Less: Effect of Intangible Assets		(0.29	)		(0.30	)		(0.33	)
Tangible book value per common share (non-GAAP)	$	19.13		$	18.82		$	18.54

Return on average stockholders' equity (GAAP)		9.09	%		9.17			6.80	%
Add: Effect of Intangible Assets		0.14			0.14			0.12
Return on average tangible common equity (non-GAAP)		9.23	%		9.31	%		6.92	%

Total tax free interest income (GAAP)
Loans receivable	$	107		$	110		$	77
Investment securities		647			614			460
Total tax free interest income	$	754		$	724		$	537
Total tax free interest income, gross (at 34% tax rate)	$	1,142		$	1,097		$	814

Net interest margin (GAAP)		3.21	%		3.21	%		3.13	%
Add: Tax effect tax free interest income at 34% tax rate		0.11			0.09			0.09
Net interest margin, tax equivalent		3.32	%		3.30	%		3.22	%

Ratio Summary:
Return on average equity (ROE)		9.09	%		9.17	%		6.80	%
Return on average tangible common equity		9.23	%		9.31	%		6.92	%
Return on average assets (ROA)		0.82	%		0.83	%		0.63	%
Tangible common equity to tangible assets		9.07	%		8.89	%		9.24	%
Net interest margin, tax equivalent		3.32	%		3.30	%		3.22	%

Liquidity

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

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

Liquidity management is both a daily and long-term function of the management of the Company and the Bank. It is overseen by the Asset and Liability Management Committee. The Board of Directors required the Bank to maintain a minimum liquidity ratio of 10% of deposits. At March 31, 2017, our ratio was 24.1%. 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, 2017, on a consolidated basis, the Company had $279.2 million in cash and investment securities available for sale and $5.1 million in loans held for sale generally available for its cash needs. We can also generate funds from borrowings, primarily FHLB advances and fed funds lines, and, to a lesser degree, third party loans. At March 31, 2017, the Bank had the ability to borrow an additional $50.6 million in FHLB advances and $40.0 million in fed funds. In addition, we have historically sold 15- and 30-year, primarily fixed-rate mortgage loans in the secondary market in order to reduce interest rate risk and to create another source of liquidity. The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its own operating expenses (many of which are paid to the Bank), the Company is responsible for paying amounts owed on its trust preferred securities, any dividends declared to its common stockholders, and interest and principal on outstanding debt. The Company’s primary source of funds is Bank dividends, the payment of which is subject to regulatory limits. At March 31, 2017, the Company, on an unconsolidated basis, had $1.2 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, 2017, the approved outstanding loan commitments, including unused lines of credit, amounted to $238.6 million. Certificates of deposit scheduled to mature in one year or less as of March 31, 2017, totaled $186.0 million. It is management’s policy to offer deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with the Bank.

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

Off-Balance Sheet Activities

In the normal course of operations, the Bank engages in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. We also have off-balance sheet obligations to repay borrowings and deposits. For the quarter ended March 31, 2017, 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, 2017, the Bank had $126.3 million in commitments to make loans, $9.7 million in undisbursed portions of closed loans, $99.9 million in unused lines of credit and $2.8 million in standby letters of credit. In addition, on a consolidated basis, at March 31, 2017, the Company had $222.7 million in outstanding borrowings, of which $59.9 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, 2016. The FDIC may require the Bank to have additional capital above the specific regulatory levels if it believes the Bank is subject to increased risk due to asset problems, high interest rate risk and other risks. The Company is subject to minimum capital requirements imposed by the FRB, which are substantially similar to those imposed on the Bank, including guidelines for bank holding companies to be considered well-capitalized.

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

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier I and Common Equity Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital to average assets (as defined). As of March 31, 2017, the Company and Bank meet all capital adequacy requirements to which it is subject.

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, 2017, the Bank and Company exceeded the minimum buffer requirement which was 1.250%.

The Company’s and Bank’s actual capital amounts and ratios as of March 31, 2017, 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	$	141,209		9.1	%	$	61,951		4.0	%		N/A		N/A
MutualBank		138,222		8.9			61,994		4.0		$	77,493		5.0	%
Common Equity Tier 1 Capital Level⁽²⁾ :
MutualFirst Consolidated	$	137,915		12.0	%	$	51,660		4.5	%		N/A		N/A
MutualBank		138,222		12.0			51,641		4.5		$	74,593		6.5	%
Tier 1 Risk-Based Capital Level⁽³⁾ :
MutualFirst Consolidated	$	141,209		12.3	%	$	68,880		6.0	%		N/A		N/A
MutualBank		138,222		12.0			68,855		6.0		$	91,806		8.0	%
Total Risk-Based Capital Level⁽⁴⁾ :
MutualFirst Consolidated	$	153,591		13.4	%	$	91,841		8.0	%		N/A		N/A
MutualBank		150,604		13.1			91,806		8.0		$	114,758		10.0	%

⁽¹⁾Tier 1 Capital to Assets for Leverage Ratio of $1.5 billion for the Bank and Company at March 31, 2017.

⁽²⁾Common Equity Tier 1 Capital to Risk-Weighted Assets of $1.1 billion for the Bank and Company at March 31, 2017.

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

⁽⁴⁾Total Capital to Risk-Weighted Assets.

Impact of Inflation

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

Item 3 Quantitative and Qualitative Disclosures About Market Risk

Information about the Company’s asset and liability management and market and interest-rate risks is included in Item 7A of the Form 10-K for the year ended December 31, 2016, filed with the SEC on March 16, 2017.

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 quarter of 2017 we sold in the secondary market $21.3 million of primarily fixed rate, one- to four-family mortgage loans with a term to maturity of 15 years or greater.

If past rate movements are an indication of future changes, they usually are neither instantaneous nor do a majority of core deposits reprice at the same level as rates change. The following chart reflects the Bank’s percentage change in net interest income, over a one year time period, and net portfolio value (NPV) assuming an instantaneous parallel rate shock in a range from down 100 basis points to up 400 basis points as of March 31, 2017.

	Percentage Change in
	Net Interest Income			NPV
Rate Shock:
Up 400 basis points		(11.1	)%		(22.6	)%
Up 300 basis points		(7.7	)%		(16.4	)%
Up 200 basis points		(4.6	)%		(10.2	)%
Up 100 basis points		(2.0	)%		(5.0	)%
Down 100 basis points		(4.6	)%		(7.1	)%

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

	Percentage Change in
	Net Interest Income			NPV
Rate Shock:
Up 400 basis points		(3.5	)%		(19.5	)%
Up 300 basis points		(3.3	)%		(14.9	)%
Up 200 basis points		(2.8	)%		(9.6	)%
Up 100 basis points		(1.6	)%		(4.9	)%
Down 100 basis points		(4.6	)%		(7.1	)%

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, 2017, 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, 2017, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to the Company’s management (including our Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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

Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls over financial reporting (as defined in SEC Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2017, 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, 2016.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

On February 19, 2016, the Company announced that its Board of Directors had authorized the repurchase of up to 375,000 shares of common stock, or approximately 5% of its then-outstanding shares over a one-year period. As of March 31, 2017, the Company had repurchased 175,428 shares at a weighted average price of $24.82 per share for a total of $4.4 million, and there were 199,572 remaining shares that may be repurchased under the current authorization. There were no shares repurchased during the three months ended March 31, 2017. These stock repurchases may be made from time-to-time in open market or negotiated transactions as deemed appropriate by the Company and will depend on market conditions.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

Item 6. Exhibits.

Regulation S-K Exhibit Number	Document	Reference to Prior Filing or Exhibit Number Attached Hereto
3.1	Articles of Incorporation	b
3.1a	Articles Supplementary to Charter	p
3.2	Articles Supplementary for the Series A Preferred Stock	c
3.3	Articles Supplementary for the SBLF Preferred Stock	a
3.4	Amended Bylaws	k
3.4a	Amended and Restated Bylaws	q
3.5	Articles Supplementary to the Company’s Charter re: term of appointed directors	l
4.1	Form of Common Stock Certificate	b
4.2	Form of Certificate for the Series A Preferred Stock	c
4.3	Form of Certificate for the SBLF Preferred Stock	a
9	Voting Trust Agreement	None
10.1	Employment Agreement with David W. Heeter	e
10.2	Employment Agreement with Patrick C. Botts	e
10.3	Form of Supplemental Retirement Plan Income Agreements for Patrick C. Botts and David W. Heeter	f
10.4	Named Executive Officer Salaries and Bonus Arrangements for 2013	n
10.5	Form of Director Shareholder Benefit Program Agreement, as amended, for Jerry D. McVicker	g
10.6	Form of Agreements for Executive Deferred Compensation Plan for Patrick C. Botts and David W. Heeter	f
10.7	Registrant’s 2001 Stock Option and Incentive Plan	h
10.8	Registrant’s 2001 Recognition and Retention Plan	h
10.9	Director Fee Arrangements for 2016	d
10.10	Director Deferred Compensation Plan	i
10.11	MutualFirst Financial, Inc. 2008 Stock Option and Incentive Plan	d
10.12	MFB Corp. 2002 Stock Option Plan	d
10.13	MFB Corp. 1997 Stock Option Plan	d
10.14	Employment Agreement with Charles J. Viater	e
10.15	Salary Continuation Agreement with Charles J. Viater	e
10.16	Loan Agreement with First Tennessee Bank National Association dated December 21, 2009.	m
10.17	Form of Incentive Stock Option Agreement for 2008 Stock Option and Incentive Plan	j
10.18	Form of Non-Qualified Stock Option Agreement for 2008 Stock Option and Incentive Plan	j
10.19	Small Business Lending Fund - Securities Purchase Agreement, dated August 25, 2011, between MutualFirst Financial, Inc. and the Secretary of the Treasury, with respect to the issuance and sale of the SBLF Preferred Stock	a
10.20	Repurchase Agreement dated August 25, 2012, between MutualFirst Financial, Inc. and the United States Department of the Treasury, with respect to the repurchase and redemption of the TARP Preferred Stock	a
10.21	Employment Agreement with Christopher D. Cook.	e
10.22	Agreement with Richard J. Lashley and PL Capital Group	q
11	Statement re computation of per share earnings	None
12	Statements re computation of ratios	None
14	Code of Ethics	o
16	Letter re change in certifying accountant	None
18	Letter re change in accounting principles	None
21	Subsidiaries of the registrant	d

22	Published report regarding matters submitted to vote of security holders	None
23	Consents of experts and counsel	d
24	Power of Attorney	None
31.1	Rule 13(a)-14(a) Certification (Chief Executive Officer)	31.1
31.2	Rule 13(a)-14(a) Certification (Chief Financial Officer)	31.2
32	Section 1350 Certification	32
101	Financial Statements from the Company’s Form 10-Q for the three months ended March 31, 2017 and 2016 and year ended December 31, 2016, formatted in Extensive Business Reporting Language (XBRL); (i) Consolidated Condensed Balance Sheets as of March 31, 2017 and December 31, 2016; (ii) Consolidated Condensed Statements of Income for the Three months ended March 31, 2017 and 2016; (iii) Consolidated Condensed Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016; (iv) Consolidated Condensed Statement of Stockholders’ Equity for the Period Ended March 31, 2017; (v) Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016; and (vi) Notes to Consolidated Financial Statements for the Three Months Ended March 31, 2017 and 2016, as follows:

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

a	Filed as an exhibit to the Company’s Form 8-K filed on August 26, 2011 and incorporated herein by reference.
b	Filed as an exhibit to the Company’s Form S-1 registration statement filed on September 16, 1999 and incorporated herein by reference.
c	Filed as an exhibit to the Company’s Form 8-K filed on December 23, 2008 and incorporated herein by reference.
d	Filed as an Exhibit to the Company’s Annual Report on Form 10-K filed on March 23, 2009 and incorporated herein by reference.
e	Filed as an exhibit to the Company’s Form 10-Q filed on November 9, 2016 and incorporated herein by reference.
f	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 16, 2017 and incorporated herein by reference.
g	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 16, 2017 and incorporated herein by reference.
h	Filed as an Appendix to the Company’s Form S-4/A Registration Statement filed on October 19, 2001 and incorporated herein by reference.
i	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 16, 2017 and incorporated herein by reference.
j	Filed as an exhibit to the Company’s Form 10-K filed on March 23, 2010 and incorporated herein by reference.
k	Filed as an exhibit to the Company’s Form 8-K filed on October 15, 2007 and incorporated herein by reference.
l	Filed as an exhibit to the Company’s Form 8-K filed on July 15, 2008 and incorporated herein by reference.
m	Filed as an exhibit to the Company’s Form 8-K filed on December 24, 2009 and incorporated herein by reference.
n	Filed as an exhibit to the Company’s Form 8-K filed on February 15, 2012 and incorporated herein by reference.
o	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 15, 2004 and incorporated herein by reference.
p	Filed as an exhibit to the Company’s Form 8-K filed on July 15, 2008 and incorporated herein by reference.
q	Filed as an exhibit to the Company’s Form 8-K filed on February 27, 2015 and incorporated herein by reference.

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

(c) Financial Statements Schedules - None

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 10, 2017	By:	/s/David W. Heeter
		David W. Heeter
		President and Chief Executive Officer

Date: May 10, 2017	By:	/s/Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and Chief Financial Officer

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 the Company’s Form 10-Q for the three months ended March 31, 2017 and 2016 and year ended December 31, 2016, formatted in Extensive Business Reporting Language (XBRL); (i) Consolidated Condensed Balance Sheets as of March 31, 2017 and December 31, 2016; (ii) Consolidated Condensed Statements of Income for the Three Months Ended March 31, 2017 and 2016; (iii) Consolidated Condensed Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016; (iv) Consolidated Condensed Statement of Stockholders’ Equity for the Period Ended March 31, 2017; (v) Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016; and (vi) Notes to Consolidated Financial Statements for the Three Months Ended March 31, 2017 and 2016, as follows:
	101.INS XBRL Instance Document
	101.SCH XBRL Taxonomy Extension Schema Document
	101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB XBRL Taxonomy Extension Labels Linkbase Document
	101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

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