10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2008 OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM - TO

Commission File Number: 000-27905

MutualFirst Financial, Inc.

(Exact Name of registrant specified in its charter)

Maryland	35-2085640
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

110 East Charles Street

Muncie, Indiana 47305

(765) 747-2800

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

The number of shares of the Registrant’s common stock, with $.01 par value, outstanding as of August 8, 2008 was 6,994,754.

FORM 10 - Q

MutualFirst Financial, Inc.

INDEX

		Page
		Number
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets	1
	Consolidated Condensed Statements of Income	2
	Consolidated Condensed Statement of Stockholders’ Equity	3
	Consolidated Condensed Statements of Cash Flows	4
	Notes to Unaudited Consolidated Condensed Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	15
Item 4.	Controls and Procedures	15
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Changes in Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 5.	Other Information	18
Item 6.	Exhibits	18
Signature Page		19
Exhibits

PART 1 FINANCIAL INFORMATION

ITEM 1. Financial Statements

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY

Consolidated Condensed Balance Sheets

	June 30,			December 31,
	2008			2007
	(Unaudited)
Assets
Cash	$	20,378,445		$	21,003,114
Interest-bearing demand deposits		9,663,238			2,645,057
Cash and cash equivalents		30,041,683			23,648,171
Interest-bearing deposits		0			100,000
Investment securities available for sale		54,516,378			43,592,485
Loans held for sale		1,060,781			1,644,615
Loans		801,346,831			810,788,842
Allowance for loan losses		(8,603,588	)		(8,352,345	)
Net loans		792,743,243			802,436,497
Premises and equipment		17,241,051			16,168,434
Federal Home Loan Bank of Indianapolis stock, at cost		10,914,300			10,036,900
Investment in limited partnerships		3,141,833			3,246,468
Cash surrender value of life insurance		30,903,260			30,350,760
Foreclosed real estate		2,301,588			1,364,505
Interest receivable		3,584,194			3,692,879
Goodwill		14,187,725			14,187,725
Deferred income tax benefit		7,675,991			5,174,082
Other assets		7,139,894			6,873,491
Total assets	$	975,451,921		$	962,517,012
Liabilities
Deposits
Non-interest-bearing	$	49,680,185		$	47,172,012
Interest bearing		627,996,889			619,235,341
Total deposits		677,677,074			666,407,353
Federal Home Loan Bank advances		198,778,290			191,675,155
Notes payable		676,268			1,055,433
Other borrowings		250,175			3,907,394
Advances by borrowers for taxes and insurance		3,880,454			1,463,809
Interest payable		2,005,545			2,467,199
Other liabilities		8,753,611			8,526,819
Total liabilities		892,021,417			875,503,162
Commitments and Contingent Liabilities
Stockholders' Equity
Preferred stock, $.01 par value Authorized and unissued — 5,000,000 shares
Common stock, $.01 par value
Authorized — 20,000,000 shares Issued and outstanding —4,118,079 and 4,226,638 shares		41,181			42,266
Additional paid-in capital		32,122,140			32,567,085
Retained earnings		56,921,411			56,725,785
Accumulated other comprehensive income (loss)		(3,906,242	)		(414,380	)
Unearned employee stock ownership plan (ESOP) shares		(1,747,986	)		(1,906,906	)
Total stockholders' equity		83,430,504			87,013,850
Total liabilities and stockholders' equity	$	975,451,921		$	962,517,012

See notes to consolidated condensed financial statements.

1

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY

Consolidated Condensed Statements of Income

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30						June 30
	2008			2007			2008			2007
Interest Income
Loans receivable, including fees	$	12,747,150		$	13,405,006		$	25,796,104		$	26,555,556
Investment seurities:
Mortgage-backed securities		219,471			111,722			377,895			228,299
Federal Home Loan Bank stock		134,264			110,275			253,290			237,457
Other investments		361,511			398,024			766,950			786,212
Deposits with financial institutions		26,529			30,800			51,786			57,672
Total interest income		13,488,925			14,055,827			27,246,025			27,865,196
Interest Expense
Passbook savings		72,553			72,365			141,365			142,538
Certificates of deposit		4,142,148			5,196,614			8,757,016			10,294,805
Daily Money Market accounts		75,432			161,524			185,917			316,802
Demand and NOW acounts		289,712			726,664			803,197			1,400,661
Federal Home Loan Bank advances		2,092,243			1,768,094			4,155,285			3,568,851
Other interest expense		17,009			16,106			43,098			31,712
Total interest expense		6,689,097			7,941,367			14,085,878			15,755,369
Net Interest Income		6,799,828			6,114,460			13,160,147			12,109,827
Provision for losses on loans		732,500			532,500			1,345,000			865,000
Net Interest Income After Provision for Loan Losses		6,067,328			5,581,960			11,815,147			11,244,827
Other Income
Service fee income		1,365,385			1,245,876			2,524,717			2,309,411
Net realized gain on redemption of VISA stock		0			0			137,434			0
Equity in losses of limited partnerships		(23,644	)		(26,591	)		(47,288	)		(53,183	)
Commissions		307,578			243,883			599,673			441,211
Net gains on sales of loans		128,220			79,104			311,579			147,322
Net servicing fees		28,641			16,644			55,480			39,030
Increase in cash surrender value of life insurance		276,000			317,500			552,500			655,000
Other income		27,075			77,932			95,255			148,067
Total other income		2,109,255			1,954,348			4,229,350			3,686,858
Other Expenses
Salaries and employee benefits		3,892,190			3,654,317			7,710,531			7,293,241
Net occupancy expenses		448,525			362,645			899,836			778,270
Equipment expenses		355,388			328,823			698,750			646,460
Data processing fees		243,388			298,484			510,201			554,040
Automated teller machine		195,382			172,421			397,954			347,035
Professional fees		230,968			177,410			440,119			356,065
Advertising and promotion		316,990			228,743			547,411			437,470
Other expenses		1,188,435			981,941			2,168,117			2,010,699
Total other expenses		6,871,266			6,204,784			13,372,919			12,423,280
Income Before Income Tax		1,305,317			1,331,524			2,671,578			2,508,405
Income tax expense		131,000			203,000			282,000			335,700
Net Income	$	1,174,317		$	1,128,524		$	2,389,578		$	2,172,705
Basic earnings per share	$	0.30		$	0.27		$	0.60		$	0.53
Diluted earnings per share	$	0.30		$	0.27		$	0.60		$	0.52
Dividends per share	$	0.16		$	0.15		$	0.32		$	0.30

See notes to consolidated condensed financial statements.

2

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY

Consolidated Condensed Statement of Stockholders' Equity

For the Six Months Ended June 30, 2008

(Unaudited)

																Accumulated
	Common Stock						Additional									Other			Unearned
	Shares						paid-in			Comprehensive			Retained			Comprehensive			ESOP
	Outstanding			Amount			capital			Income			Earnings			Income (Loss)			shares			Total
Balances, December 31, 2007, as reported		4,226,638		$	42,266		$	32,567,085					$	56,725,785		$	(414,380	)	$	(1,906,906	)	$	87,013,850
Comprehensive income
Net income for the period										$	2,389,578			2,389,578									2,389,578
Other comprehensive income, net of tax
Net unrealized losses on securities											(3,491,862	)					(3,491,862	)					(3,491,862	)
Comprehensive income										$	(1,102,284	)
ESOP shares earned								41,197												158,920			200,117
Cash dividends ($.32 per share)														(1,329,882	)								(1,329,882	)
RRP shares earned								10,528															10,528
Stock repurchased and retired		(108,559	)		(1,085	)		(496,670	)					(864,070	)								(1,361,825	)
Balances, June 30, 2008		4,118,079			41,181		$	32,122,140					$	56,921,411		$	(3,906,242	)	$	(1,747,986	)	$	83,430,504

See notes to consolidated condensed financial statements.

3

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
	2008			2007
Operating Activities
Net income	$	2,389,578		$	2,172,705
Items not requiring (providing) cash
Provision for loan losses		1,345,000			865,000
ESOP shares earned		200,117			310,461
RRP shares earned		10,528			10,528
Depreciation and amortization		1,337,054			1,311,864
Deferred income tax		(174,000	)		(350,000	)
Loans originated for sale		(27,657,883	)		(11,748,865	)
Proceeds from sales of loans held for sale		28,270,879			12,103,665
Gains on sales of loans held for sale		(311,579	)		(147,322	)
Change in
Interest receivable		108,685			342,790
Other assets		16,014			28,743
Interest payable		(461,654	)		151,756
Other liabilities		226,792			897,984
Cash value of life insurance		(552,500	)		(655,000	)
Other adjustments		(239,639	)		35,813
Net cash provided by operating activities		4,507,392			5,330,122
Investing Activities
Net change in interest earning deposits		100,000			100,000
Purchases of securities available for sale		(20,761,567	)		(568,879	)
Proceeds from matuities and paydowns of securities available for sale		3,628,076			1,869,443
Net change in loans		6,230,513			8,003,005
Purchases of premises and equipment		(1,787,614	)		(444,584	)
Proceeds from real estate owned sales		291,651			635,776
Cash paid in acquisition, net		-			(515,475	)
Other investing activities		50,335			50,335
Net cash (used in) provided by investing activities		(12,248,606	)		9,129,621
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits		4,199,589			7,614,160
Certificates of deposits		7,070,132			(20,042,804	)
Repayment of note payable		(410,376	)		(240,678	)
Proceeds from FHLB advances		265,725,000			204,150,000
Repayment of FHLB advances		(258,517,338	)		(207,088,800	)
Repayment of other short term borrowing		(3,657,219	)		-
Net change in advances by borrowers for taxes and insurance		2,416,645			1,844,972
Stock repurchased		(1,361,825	)		(853,692	)
Proceeds from stock options exercised		-			87,000
Cash dividends		(1,329,882	)		(1,300,353	)
Other financing activities					250,500
Net cash (used in) provided by financing activities		14,134,726			(15,579,695	)
Net Change in Cash and Cash Equivalents		6,393,512			(1,119,952	)
Cash and Cash Equivalents, Beginning of Year		23,648,171			24,914,872
Cash and Cash Equivalents, End of Period	$	30,041,683		$	23,794,920
Additional Cash Flows Information
Interest paid	$	14,547,532		$	15,603,613
Income tax paid		900,000			230,000
Transfers from loans to foreclosed real estate		1,491,696			932,584
Mortgage servicing rights capitalized		282,417			120,772

See Notes to Consolidated Condensed Financial Statements

4

MutualFirst Financial, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS

Note 1: Basis of Presentation

The consolidated condensed financial statements include the accounts of MutualFirst Financial, Inc. (the “Company”), its wholly owned subsidiary, Mutual Bank, a federally chartered savings bank (“Mutual”), Mutual’s wholly owned subsidiaries, First MFSB Corporation and 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.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2007 filed with the Securities and Exchange Commission.

The interim consolidated financial statements at June 30, 2008 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, 2007 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

Note 2: Earnings per share

Note 2 — Earnings per share

Earnings per share were computed as follows: (Dollars in thousands except per share data)

	Three Months Ended Ended June 30,
	2008						2007
			Weighted-						Weighted-
			Average		Per-Share				Average		Per-Share
	Income		Shares		Amount		Income		Shares		Amount
	(000's)						(000's)
Basic Earnings Per Share
Income available to common shareholders	$	1,174		3,970,982	$	0.30	$	1,129		4,120,844	$	0.27
Effect of Dilutive securities
Stock options and RRP grants				0						53,142
Diluted Earnings Per Share
Income available to common stockholders and assumed
conversions	$	1,174		3,970,982	$	0.30	$	1,129		4,173,986	$	0.27

	Six Months Ended Ended June 30,
	2008						2007
			Weighted-						Weighted-
			Average		Per-Share				Average		Per-Share
	Income		Shares		Amount		Income		Shares		Amount
	(000's)						(000's)
Basic Earnings Per Share
Income available to common shareholders	$	2,390		3,987,123	$	0.60	$	2,173		4,125,935	$	0.53
Effect of Dilutive securities
Stock options and RRP grants				0						60,168
Diluted Earnings Per Share
Income available to common stockholders and assumed
conversions	$	2,390		3,987,123	$	0.60	$	2,173		4,186,103	$	0.52

Options of 380,613 and 91,000 shares were not included in the calculation above due to being anti-dilutive to earnings per share as of June 30, 2008 and June 30, 2007.

5

Note 3: Future Accounting Pronouncements

In December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations (SFAS141R). SFAS 141R established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for business combinations where the acquisition date is on or after fiscal years beginning after December 15, 2008. SFAS 141R is expected to have an impact on the Company’s accounting for any business combinations closing on or after January 1, 2009.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51 (SFAS 160). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 shall be applied prospectively. SFAS 160 is effective for fiscal years beginning after December 15, 2008.

Note 4: Disclosures About Fair Value of Assets and Liabilities

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 has been applied prospectively as of the beginning of the year.

FAS 157 defines fair value as 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. FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes 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 that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

6

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying 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 and no securities are priced as Level 1 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, 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.

			Fair Value Measurements Using
	Fair Value		Quoted Prices in  Active Markets  for Identical  Assets (Level 1)		Significant  Other  Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities	$	54,516,378	$	—	$	48,743,878	$	5,772,500

The following is a reconciliation of the beginning and ending balances for the three months ended June 30, 2008 of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	Available-for- sale securities
Beginning balance	$	9,711,340
Total realized and unrealized gains and losses
Included in net income
Included in other comprehensive income		(3,938,840	)
Purchases, issuances and settlements
Transfers in and/or out of Level 3
Ending balance	$	5,772,500
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date	$	—

The following is a reconciliation of the beginning and ending balances for the six months ended June 30, 2008 of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	Available-for- sale securities
Beginning balance	$	9,923,242
Total realized and unrealized gains and losses
Included in net income
Included in other comprehensive income		(4,150,742	)
Purchases, issuances and settlements
Transfers in and/or out of Level 3
Ending balance	$	5,772,500
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date	$	—

Note 5: Stock Option Plan

MutualFirst Financial, Inc. shareholders approved a new Stock Option Plan at the last shareholder’s meeting. There have been no stock options granted on the new plan.

Note 6: Subsequent Event

On July 18, 2008, the Company completed its acquisition of MFB Corp. MFB Financial, the wholly owned subsidiary of MFB Corp., was merged into Mutual as part of this acquisition. This merger added ten branch offices in St. Joseph and Elkhart counties, Indiana, two trust offices in Hamilton and Montgomery counties, Indiana, and a loan production office in Berrien County, Michigan to the existing Bank footprint as discussed below.

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

General

MutualFirst Financial, Inc., a Maryland corporation (the “Company”), was organized in September 1999. On December 29, 1999, it acquired the common stock of Mutual Bank (“Mutual”) upon the conversion of Mutual from a federal mutual savings bank to a federal stock savings bank.

7

Mutual was originally organized in 1889 and currently conducts its business from twenty-two full service offices located in Delaware, Elkhart, Grant, Kosciusko, Randolph, and Wabash counties, Indiana, with its main office located in Muncie. Mutual’s principal business consists of attracting deposits from the general public and originating fixed and variable rate loans secured primarily by first mortgage liens on residential and commercial real estate, consumer goods, and business assets. Mutual’s deposit accounts are insured by the Federal Deposit Insurance Corporation up to applicable limits.

Mutual currently owns two subsidiaries, First MFSB Corporation and Mutual Federal Investment Company (“MFIC”). The assets of First MFSB Corporation consist of an investment in Family Financial Holdings Incorporated. Family Financial is an ordinary Indiana corporation that provides debt cancellation products to financial institutions. MFIC is a Nevada corporation holding approximately $45 million in investments. MFIC currently owns one subsidiary, Mutual Federal REIT. The assets of Mutual Federal REIT consist of approximately $124 million in one-to four-family mortgage loans.

The following should be read in conjunction with the Management’s Discussion and Analysis in the Company’s December 31, 2007 Annual Report on Form 10-K.

Critical Accounting Policies

The notes to the consolidated financial statements contain a summary of the Company’s significant accounting policies presented on pages 65 to 69 of the Annual Report on Form 10-K for the year ended December 31, 2007. 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 and intangible assets.

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.

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.

8

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 intangible assets in the consolidated balance sheet. The value of the capitalized servicing rights represents the present value of the future servicing fees arising from 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 amortization of intangible assets.

Intangible Assets

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

Forward Looking Statements

This quarterly report on Form 10-Q contains statements which constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may appear in a number of places in this Form 10-Q and include statements regarding the intent, belief, outlook, estimate or expectations of the company, its directors or its officers primarily with respect to future events and the future financial performance of the company. Readers of this Form 10-Q are cautioned that any such forward looking statements are not guarantees of future events or performance and involve risk and uncertainties, and that actual results may differ materially from those in the forward looking statements as a result of various factors. The accompanying information contained in this Form 10-Q identifies important factors that could cause such differences. These factors include changes in interest rates; the loss of deposits and loan demand to competitors; substantial changes in financial markets; changes in real estate values and the real estate market; or regulatory changes.

9

The Company does not undertake - and specifically disclaims any obligation - to publicly release the result of any revisions which 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 anticipated or unanticipated events.

Overview

The Company’s results of operations depend primarily on the level of net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and investments, and costs incurred with respect to interest-bearing liabilities, primarily deposits and borrowings. The structure of our interest-earning assets versus the structure of interest-bearing liabilities along with the shape of the yield curve has a direct impact on our net interest income.

Historically, our interest-earning assets have been longer term in nature (i.e., fixed-rate mortgage loans) and interest-bearing liabilities have been shorter term (i.e., certificates of deposit, regular savings accounts, etc). This structure would impact net interest income favorably in a decreasing rate environment, assuming a normally shaped yield curve, as the rates on interest-bearing liabilities would decrease more rapidly than rates on the interest-earning assets. Conversely, in an increasing rate environment, assuming a normally shaped yield curve, net interest income would be impacted unfavorably as rates on interest-earning assets would increase at a slower rate than rates on interest-bearing liabilities.

The Federal Funds rate set by the Board of Governors of the Federal Reserve System has decreased 225 basis points from December 31, 2007 and 325 basis points from June 30, 2007 to June 30, 2008. These decreases in the Federal Funds rate have allowed for deposits and borrowings to reprice lower. Any future decreases in the Federal Funds rate in the upcoming months should allow for continued downward repricing of our deposits and borrowings, reducing pressure on net interest income. Any increase in the Federal Funds rate will increase interest expense and reduce net interest income if there is not a corresponding increase in long term rates.

Since 2000 it has been the Company’s strategic objective to change the repricing structure of its interest-earning assets from longer term to shorter term to better match the structure of our interest-bearing liabilities and therefore reduce the impact interest rate changes have on our net interest income. Strategies employed to accomplish this objective have been to increase the originations of variable rate commercial loans and shorter term consumer loans and to sell longer term mortgage loans. The percentage of consumer and commercial loans to total loans has increased from 35% at the end of 2000 to 46% currently. As we continue to increase our investment in business-related loans, which are considered to entail greater risks than one-to four- family residential loans, in order to help offset the pressure on our net interest margin, our provision for loan losses may increase to reflect this increased risk. On the liability side of the balance sheet, the Company is employing strategies to increase the balance of core deposit accounts such as low cost checking and money market accounts. The percentage of core deposits to total deposits has increased from 33% to 36% over this time period. These are ongoing strategies that are dependent on current market conditions and competition.

10

During the first six months of 2008, in keeping with its strategic objective to reduce interest rate risk exposure, the Company also sold $28.2 million of long term fixed rate loans that had been held for sale, which reduced potential earning assets and therefore had a negative impact on net interest income. This was offset, in the short term, by recognizing a gain on the sale of these loans of $312,000.

The Company converted to a public company at the end of 1999, and at the end of 2000 bought a $200 million thrift for stock. Since that time the Company has been buying back the Company’s stock to manage capital levels and enhance earnings per share. During the first six months of 2008, the Company used $1.4 million for this purpose, thereby reducing earning assets from where they otherwise would have been and correspondingly reducing net interest income.

On March 22, 2007 the Bank completed the acquisition of Wagley Investment Advisors, Inc. Wagley Investment Advisors, Inc. is now known as Mutual Financial Advisors, providing new and expanded investment management services not previously offered by the Bank.  Mutual Financial Advisors offers a full range of non-bank investment options and money management. 

Results of operations also depend upon the level of the Company’s non-interest income, including fee income and service charges, and the level of its non-interest expense, including general and administrative expenses. In addition to the recent acquisition of Wagley Investment Advisors, the Company opened a new branch in Elkhart County in February 2008 and plans to open another in September 2008 in Elkhart County. The intent of these initiatives is to increase income over the long term. However, on a short term basis, expenses relating to the new branches and a new division will have the affect of increasing non-interest expense with limited immediate offsetting income.

On July 18, 2008, the Company completed the acquisition of MFB Corp and its thrift subsidiary. This transaction allows the Bank to enter into new markets, expand commercial lending and enhance trust services to existing customers through trust powers received from MFB Financial.

11

Financial Condition

Assets totaled $975.5 million at June 30, 2008, an increase from December 31, 2007 of $12.9 million, or 1.3%. Loans, excluding loans held for sale, decreased $9.0 million or 1.1%. Consumer loans decreased $3.6 million, or 1.6%, while commercial loans increased $5.0 million, or 3.5%, and residential mortgage loans held in the portfolio decreased $10.4 million, furthering our strategy to reduce the percentage of fixed rate real estate mortgage loans to total loans. Mortgage loans held for sale decreased $584,000 and mortgage loans sold during the first half of 2008 totaled $28.2 million compared to $12.1 million during the same period in 2007. The decreased loan balances were due primarily to an increase in sales of fixed rate real estate mortgage loans. Investment securities available for sale increased $10.9 million, or 25.0%, offsetting the reduction in the loan portfolio. Cash and cash equivalents increased $6.4 million, or 27.0% as the bank’s interest earning cash accounts increased.

Allowance for loan losses increased $252,000 to $8.6 million when comparing June 30, 2008 to December 31, 2007. Net charge offs for the first half of 2008 were $1.1 million, or .27% of average loans on an annualized basis compared to $744,000, or .18% of average loans for the comparable period in 2007. On a linked quarter basis, net charge offs compared to average loans were .28% in the second quarter 2008 compared to .26% in the first quarter 2008. As of June 30, 2008 the allowance for loan losses as a percentage of loans receivable and non-performing loans was 1.07% and 78.35%, respectively, compared to 1.03% and 79.72%, respectively, at December 31, 2007.

Total deposits were $677.7 million at June 30, 2008, an increase from $666.4 million at December 31, 2007. This increase was due primarily to increases in core demand, money market and savings deposits of $4.2 million and wholesale deposits of $15.8 million. The increase was partially offset by decreases in certificates of deposit of $8.7 million. Total borrowings increased $3.1 million to $199.7 million at June 30, 2008 from $196.6 million at December 31, 2007.

Stockholders’ equity decreased $3.6 million, or 4.1%, from $87.0 million at December 31, 2007, to $83.4 million at June 30, 2008. The decrease was due primarily to a decrease in the market value of securities available for sale compared to their book value of $3.5 million from a loss of $414,000 at December 31, 2007 to a loss of $3.9 million at June 30, 2008. This decrease was due primarily to price decreases, caused chiefly by illiquid credit markets, in certain investment grade trust preferred securities owned by the bank. The decrease in the investment grade trust preferred securities are not seen as other than temporary price changes. Other decreases in stockholders’ equity resulted from the use of $1.4 million to repurchase 109,000 shares of common stock and dividend payments of $1.3 million. These decreases were partially offset by net income of $2.4 million, and Employee Stock Ownership Plan (ESOP) and RRP shares earned of $211,000.

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Comparison of the Operating Results for the Three Months Ended June 30, 2008 and 2007

Net income for the second quarter ended June 30, 2008 was $1.2 million, or $.30 for basic and diluted earnings per share. This compared to net income for the comparable period in 2007 of $1.1 million, or $.27 for basic and diluted earnings per share. Annualized return on assets was .49% and return on tangible equity was 6.58% for the second quarter of 2008 compared to .48% and 6.24% respectively, for the same period last year.

Net interest income before the provision for loan losses increased $685,000 from $6.1 million for the three months ended June 30, 2007 to $6.8 million for the three months ended June 30, 2008. The reasons for the increase were an $8.1 million, or .9%, increase in average interest earning assets and a 28 basis point increase in the net interest margin. On a linked quarter basis, net interest margin increased to 3.13% for the three months ended June 30, 2008 compared to 2.94% for the three months ended March 31, 2008.

The provision for loan losses for the second quarter of 2008 was $733,000, compared to $533,000 for last year’s comparable period. Non-performing loans to total loans at June 30, 2008 were 1.37% compared to .61% at June 30, 2007. Non-performing assets to total assets were 1.51% at June 30, 2008 compared to .80% at June 30, 2007. On a linked quarter basis, non-performing loans to total loans decreased from 1.44% for the quarter ended March 31, 2008 to 1.37% for the quarter ended June 30, 2008.

Non-interest income increased $155,000 to $2.1 million, or 7.9%, for the three months ended June 30, 2008 compared to the same period in 2007. The increase was due primarily to increases in service fees on transaction accounts of $119,000, or 9.6%, due primarily to increased overdraft fees, increases in commission income of $64,000, or 26.2%, due primarily to increased annuity sales, and increases in net gain on loan sales and servicing of $61,000, or 63.8%, due primarily to increased loan sales.

Non-interest expense increased $667,000 to $6.9 million, or 10.8%, for the three months ended June 30, 2008 compared to the same period in 2007. Increases in current quarter non-interest expense compared to the same period in 2007 included increases in occupancy and equipment expense of $135,000, primarily due to a new branch office in Elkhart County, increases in salaries and employee benefits of $238,000, primarily due to salary adjustments and new employees for the Elkhart County branch, increases in marketing expense of $88,000, primarily due to re-branding of the Bank’s name, and increases in other expenses of $207,000, primarily due to FDIC premium increases and expenses related to the Bank’s name change.

Income tax expense decreased $72,000 for the three months ended June 30, 2008 compared to the same period in 2007 due primarily to less income subject to income taxes. The effective tax rate also decreased from 15.2% to 10.0% due to an increased percentage of low income housing tax credits to taxable income when comparing the second quarter of 2008 to the second quarter of 2007, respectively.

13

Comparison of the Operating Results for the Six Months Ended June 30, 2008 and 2007

Net income for the six months ended June 30, 2008 was $2.4 million or $.60 for basic and diluted earnings per share. This compared to net income for the comparable period in 2007 of $2.2 million or $.53 for basic and $.52 for diluted earnings per share. Annualized return on average assets was .50% and return on average tangible equity was 6.69% for the first half of 2008 compared to .46% and 6.01% respectively, for the same period last year.

Net interest income before the provision for loan losses increased $1.1 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The reasons for the increase were similar to those stated above. Average interest earning assets increased $6.9 million, or 8.0% and the net interest margin increased by 22 basis points from 2.82% for the six months ended June 30, 2007 to 3.04% for the same period in 2008.

The provision for loan losses for the six months ended June 30, 2008 was $1.3 million compared to $865,000 for last year’s comparable period. The increased provision for the six months ended 2008 compared to the same time period in 2007 was a result of increased non-performing assets, mostly in one-to four-family and commercial real estate loans. Non-performing assets were 1.51% at June 30, 2008 compared to .80% at June 30, 2007.

For the six month period ended June 30, 2008 non-interest income increased $543,000, or 14.7%, to $4.2 million compared to $3.7 million for the same period in 2007. The increase was due primarily to increases in service fee income on transaction accounts of $215,000, or 9.3%, increases in commission income of $158,000, or 35.9%, increases in gains and serving of loans sold of $181,000, and the gain on redemption of VISA stock of $137,000. These increases were partially offset by a decrease in income from cash surrender value of life insurance of $103,000 and a decrease in other income of $53,000.

For the six month period ended June 30, 2008 non-interest expense increased $1.0 million, or 7.6%, to $13.4 million compared to $12.4 million for the same period in 2007. The increase was due primarily to increases in salaries and employee benefits of $417,000, primarily due to annual salary adjustments and staffing of a new branch, increases in occupancy and equipment expenses of $174,000, primarily due to the new Elkhart branch, increases in advertising of $110,000, primarily due to the re-branding of the bank’s name, increases in professional fees of $84,000, primarily due to legal expenses related to delinquent loans, and increases in other expenses of $157,000, due primarily to FDIC premium increases, merger related expenses and expenses related to the bank’s name change.

For the six-month period ended June 30, 2008, income tax expense decreased $54,000 compared to the same period in 2007. The decrease was due primarily to less income subject to income taxes. The effective tax rate also decreased from 13.3% to 10.6% due to an increased percentage of low income housing tax credits to taxable income when comparing the first half of 2008 to the first half of 2007, respectively.

14

Liquidity and Capital Resources

The standard measure of liquidity for savings associations is the ratio of cash and eligible investments to a certain percentage of the net-withdrawable savings accounts and borrowings due within one year. As of June 30, 2008, Mutual Federal had liquid assets of $70.1 million and a liquidity ratio of 8.16%. It is anticipated that this level of liquidity will be adequate for the remainder of 2008.

ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk

Presented below as of June 30, 2008 and 2007 is an analysis of Mutual Federal’s interest rate risk as measured by changes in Mutual Federal’s net portfolio value (“NPV”) assuming an instantaneous and sustained parallel shift in the yield curve, in 100 basis point increments.

				June 30, 2008
				Net Portfolio Value
Changes										NPV as % of PV of Assets
In Rates	$ Amount			$ Change			% Change			NPV Ratio			Change
+300 bp		55,648			-36,680			-40	%		6.23	%		-336 bp
+200 bp		68,115			-24,213			-26	%		7.44	%		-215 bp
+100 bp		81,281			-11,047			-12	%		8.66	%		-94 bp
0 bp		92,328									9.59	%
-100 bp		96,594			4,266			5	%		9.84	%		25 bp
-200 bp		95,683			3,355			4	%		9.59	%		0 bp
-300 bp		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)

			June 30, 2007
			Net Portfolio Value
Changes								NPV as % of PV of Assets
In Rates	$ Amount		$ Change		% Change			NPV Ratio			Change
+300 bp		58,286		-45,416		-44	%		6.79	%		-443 bp
+200 bp		74,945		-28,757		-28	%		8.51	%		-272 bp
+100 bp		89,486		-14,216		-14	%		9.92	%		-130 bp
0 bp		103,702							11.22	%
-100 bp		114,324		10,622		10	%		12.12	%		90 bp
-200 bp		120,058		16,356		16	%		12.52	%		129 bp
-300 bp		126,889		23,187		22	%		12.98	%		176 bp

n/m(1) - not meaningful because certain market interest rates would be below zero at that level of rate shock.

The analysis at June 30, 2008 indicates that there have been no material changes in market interest rates for Mutual Federal’s interest rate sensitivity instruments which would cause a material change in the market risk exposures that effect the quantitative and qualitative risk disclosures as presented in item 7A of the Company’s annual report on Form 10-K for the period ended December 31, 2007.

ITEM - 4 Controls and Procedures.

(a) An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a -15(c) under the Securities Exchange Act of 1934 (the “Act”) was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the act is (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and the 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. There have been no changes in our internal control over financial reporting (as defined in Rule 13a - 15(f) under the Act) that occurred during the quarter ended June 30, 2008 that has materially affected, or is likely to materially affect our internal control over financial reporting.

15

The Company intends to continually review and evaluate the design and effectiveness of its disclosure controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company’s business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures.

16

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 Form 10-K for the year ended December 31, 2007.
Item 2.	Registered sales of Equity Securities and use of Proceeds
	On September 12, 2007 the Company’s Board of Directors authorized management to repurchase an additional 5% of the Company’s outstanding stock, or approximately 215,000 shares. Information on the shares purchased during the second quarter of 2008 is as follows.

					Total Number of		Maximum Number of
					Shares Purchased		Shares that May Yet
	Total Number of		Average Price		As Part of Publicly		Be Purchased
	Shares Purchased		Per Share		Announced Plan		Under the Plan
								96,839	(1)
April 1, 2008 - April 30, 2008		15,000	$	12.82		15,000		81,839
May 1, 2008 - May 31, 2008		20,000		12.55		20,000		61,839
June 1, 2008 - June 30, 2008		26,800		10.81		26,800		35,039
		61,800	$	11.86		61,800

(1) Amount represents the number of shares available to be repurchased under the plan as of March 31, 2008

Item 3.	Defaults Upon Senior Securities.
	None.
Item 4.	Submission of Matters to Vote of Security Holders.
	The following is a record of the votes cast at the Company’s Annual Meeting of Stockholders in the election of directors of the Company:

	FOR	VOTE WITHHELD
Linn A. Crull	3,683,036	166,638
Wilbur R. Davis	3,680,793	168,881
Jon R. Marler	3,679,821	169,853

Accordingly, the individuals named above, were declared to be duly elected directors of the Company for terms to expire in 2011.

17

The following is a record of the votes cast for the proposal to ratify the appointment of BKD,LLP as the Company’s independent auditors for the fiscal year ending December 31, 2007.

FOR	3,822,069
AGAINST	9,836
ABSTAIN	9,953

Accordingly, the proposal described above was declared to be duly adopted by the stockholders of the Corporation.

The following is a record of the votes cast for the proposal to approve the issuance of MutualFirst Financial, Inc. shares in the merger.

FOR	2,652,852
AGAINST	475,949
ABSTAIN	15,742

Accordingly, the proposal described above was declared to be duly adopted by the stockholders of the Corporation.

The following is a record of the votes cast for the proposal to approve the MutualFirst Financial, Inc. 2008 Stock Option and Incentive Plan.

FOR	2,508,332
AGAINST	619,754
ABSTAIN	16,458

Accordingly, the proposal described above was declared to be duly adopted by the stockholders of the Corporation.

Item 5. Other Information.

None.

Item 6. Exhibits.

Index to Exhibits

Number	Description
3.1	Charter of the Company, as amended
3.2	Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on October 15, 2007 (File No. 000-27905))
31.1	Rule 13a - 14(a) Certification - Chief Executive Officer
31.2	Rule 13a - 14(a) Certification - Chief Financial Officer
32	Certificate of the Chief Executive Officer and Chief Financial Officer pursuant to U. S. C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2003.

18

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.

	MutualFirstFinancial, Inc.
Date: August 8, 2008	By:	/s/ David W. Heeter
	David W. Heeter
	President and Chief Executive Officer
Date: August 8, 2008	By:	/s/ Timothy J. McArdle
	Timothy J. McArdle
	Senior Vice President and Treasurer

19

EX-3.1

EXHIBIT 3.1

MUTUALFIRST FINANCIAL, INC.

ARTICLES SUPPLEMENTARY TO THE CHARTER

MutualFirst Financial, Inc., a Maryland corporation (the “Corporation” or “MutualFirst”), hereby certifies to the State Department of Assessments and Taxation of Maryland, that:

FIRST:The board of directors of the Corporation, at a meeting duly convened and held on July 9, 2008 and by the vote required by law and the charter and bylaws of the Corporation, adopted the following resolution electing to make the Corporation subject to Section 3-804(c) of the Maryland General Corporation Law (the “MGCL”):

RESOLVED, that MutualFirst hereby elects to be subject to Section 3-804(c) of the MGCL.

SECOND: That the Corporation is eligible to make such election, as provided in Section 3-802 of the MGCL.

THIRD:That these Articles Supplementary to the Charter shall become effective upon filing with the State Department of Assessments and Taxation of Maryland.

[Signature page follows]

IN WITNESS WHEREOF, MUTUALFIRST FINANCIAL, INC. has caused these Articles Supplementary to the Charter to be signed in its name and on its behalf by its President and Chief Executive Officer and witnessed by its Secretary on July 14, 2008.

WITNESS:	MUTUALFIRST FINANCIAL, INC.
	(a Maryland corporation)
/s/ Rosalie Petro	By   /s/ David W. Heeter
Rosalie Petro, Secretary	David W. Heeter, President and Chief Executive Officer

THE UNDERSIGNED, President and Chief Executive Officer of MUTUALFIRST FINANCIAL, INC., who executed on behalf of said Corporation the foregoing Articles Supplementary to the Charter of which this certificate is made a part, hereby acknowledges in the name and on behalf of said corporation the foregoing Articles Supplementary to the Charter to be the corporate act of said Corporation and hereby certifies that to the best of his knowledge, information and belief the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury.

/s/ David W. Heeter 

David W. Heeter, President and Chief Executive Officer

Title 

2

MUTUALFIRST FINANCIAL, INC.

ARTICLES OF RESTATEMENT

OF

ARTICLES OF INCORPORATION

MutualFirst Financial, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Maryland, and having its principal office and registered agent as c/o The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202,

DOES HEREBY CERTIFY AS FOLLOWS:

FIRST:   That said corporation desires to restate its Articles of Incorporation as currently in effect.

SECOND: That the Articles of Incorporation of said corporation was originally filed by the State Department of Assessments and Taxation on the 15th day of September 1999.

THIRD:   That at a meeting of the board of directors of said corporation, resolutions were adopted setting forth a proposed restatement of the Articles of Incorporation of said corporation, declaring said restatement to be advisable and adopted as the act of said corporation.

FOURTH:   That saidrestatement was approved by a majority of the entire board of directors of said corporation.

FIFTH:   That the provisions set forth in these Articles of Restatement constitute all of the provisions of the Articles of Incorporation of said corporation currently in effect.

SIXTH:   That the Articles of Incorporation of said corporation are not amended by these Articles of Restatement.

SEVENTH:   That the provisions of the Articles of Incorporation of said corporation which are now in effect, stated in accordance with the provisions of Section 2-608 of Corporations and Associations Article of the Annotated Code of Maryland, are as follows:

ARTICLE 1.  Name.  The name of the corporation is MutualFirst Financial, Inc. (herein the “Corporation”).

ARTICLE 2.  Principal Office.  The address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202.

ARTICLE 3.  Purpose.  The purpose of the Corporation is to engage in any lawful act or activity for which the corporation may be organized under the General Corporation Law of the State of Maryland (the “MGCL”).

ARTICLE 4.  Resident Agent.  The name and address of the registered agent of the Corporation in the State of Maryland is The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202.  Said resident agent is a Maryland corporation.

ARTICLE 5. Initial Directors.  The number of directors constituting the initial board of directors of the Corporation is seven, which number may be increased or decreased pursuant to the Bylaws of the Corporation and ARTICLE 9 of the Articles of Incorporation, but shall never be less than the minimum number permitted by the MGCL now or hereafter in force.  The names of the persons who are to serve as directors until their successors are elected and qualified, are:

Name	Term to Expire in
William V. Hughes	2000
R. Donn Roberts	2000
James D. Rosema	2000
Edward Dobrow	2001
Julie Skinner	2001
Linn A. Crull	2002
Wilbur R. Davis	2002

ARTICLE 6.

Capital Stock.  The total number of shares of capital stock which the Corporation shall have the authority to issue is twenty five million (25,000,000) shares consisting of:

1.           Five million (5,000,000) shares of preferred stock, par value one cent ($.0l) per share (the "Preferred Stock"); and

2.           Twenty million (20,000,000) shares of common stock, par value one cent ($.0l) per share (the "Common Stock").

The aggregate par value of all the authorized of capital stock is two hundred fifty thousand dollars ($250,000).  Except to the extent required by governing law, rule or regulation, the shares of capital stock may be issued from time to time by the Board of Directors without further approval of the stockholders of the Corporation.  The Corporation shall have the authority to purchase its capital stock out of funds lawfully available therefore which funds shall include, without limitation, the Corporation=s unreserved and unrestricted capital surplus.

B.  Preferred Stock.  The Board of Directors is hereby expressly authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof.  The number of authorized shares of the Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of the Preferred Stock.

C. Common Stock.  Except as provided for in the Articles of Incorporation (or any resolution or resolutions adopted by the Board of Directors pursuant hereto) the exclusive voting power shall be vested in the Common Stock, the holders thereof being entitled to one vote for each share of such Common Stock standing in the holder=s name on the books of the Corporation.  Subject to any rights and preferences of any class of stock having preferences over the Common Stock, holders of Common Stock shall be entitled to such dividends as may be declared by the Board of Directors out of funds lawfully available therefor.  Upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to receive pro rata the remaining assets of the Corporation after payment or provision for payment of all debts and liabilities of the Corporation and payment or provision for payment of any amounts owed to the holders of any class of stock having preference over the Common Stock on distributions on liquidation, dissolution or winding up of the Corporation.

2

D.  Restrictions on Voting Rights of the Corporation=s Equity Securities.

1.           Notwithstanding any other provision of these Articles of Incorporation, in no event shall any record owner of any outstanding Common Stock which is beneficially owned, directly or indirectly, by a person who, as of any record date for the determination of stockholders entitled to vote on any matter, beneficially owns in excess of 10% of the then-outstanding shares of Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of the shares held in excess of the Limit.  The number of votes which may be cast by any record owner by virtue of the provisions hereof in respect of Common Stock beneficially owned by such person owning shares in excess of the Limit shall be a number equal to the total number of votes which a single record owner of all Common Stock owned by such person would be entitled to cast, multiplied by a fraction, the numerator of which is the number of shares of such class or series beneficially owned by such person and owned of record by such record owner and the denominator of which is the total number of shares of Common Stock beneficially owned by such person owning shares in excess of the Limit.

2.           The following definitions shall apply to this Section D of this Article.

(a)           An "affiliate” of a specified person shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

(b)           "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in effect on August 31, 1994; Provided, however, that a person shall, in any event, also be deemed the "beneficial owner" of any Common Stock:

(1)           which such person or any of its affiliates beneficially owns, directly or indirectly; or

(2)           which such person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, contract, or other arrangement with this Corporation to effect any transaction which is described in any one or more of the clauses of Section A of ARTICLE 10) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such affiliate is otherwise deemed the beneficial owner), or

(3)           which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation;

and provided further, however, that (1) no director or officer of this Corporation (or any affiliate of any such director or officer) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Common Stock beneficially owned by any other such director or officer (or any affiliate thereof), and (2) neither any employee stock ownership or similar plan of this Corporation or any subsidiary of this Corporation nor any trustee with respect thereto (or any affiliate of such trustee) shall, solely by reason of such capacity of such trustee, be deemed, for any purposes hereof, to beneficially own any Common Stock held under any such plan.  For purposes of computing the percentage beneficial ownership of Common Stock of a person, the outstanding Common Stock shall include shares deemed owned by such person through application of this subsection but shall not include any other Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise.  For all other purposes, the outstanding Common Stock shall include only Common Stock then outstanding and shall not include any Common Stock which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise.

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(c)           A "Person" shall mean any individual, firm, corporation, or other entity.

(d)           The Board of Directors shall have the power to construe and apply the provisions of this section and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (1) the number of shares of Common Stock beneficially owned by any person, (2) whether a person is an affiliate of another, (3) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (4) the application of any other definition or operative provision of this Section to the given facts, or (5) any other matter relating to the applicability or effect of this Section.

3.           The Board of Directors shall have the right to demand that any person who is reasonably believed to beneficially own Common Stock in excess of the Limit (or holds of record Common Stock beneficially owned by any person in excess of the Limit) (a "Holder in Excess") supply the Corporation with complete information as to (a) the record owner(s) of all shares beneficially owned by such Holder in Excess, and (b) any other factual matter relating to the applicability or effect of this section as may reasonably be requested of such Holder in Excess.  The Board of Directors shall further have the right to receive from any Holder in Excess reimbursement for all expenses incurred by the Board in connection with its investigation of any matters relating to the applicability or effect of this section on such Holder in Excess, to the extent such investigation is deemed appropriate by the Board of Directors as a result of the Holder in Excess refusing to supply the Corporation with the information described in the previous sentence.

4.           Except as otherwise provided by law or expressly provided in this Section D, the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast one-third of the votes (after giving effect, if required, to the provisions of this Section) entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in these Articles of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.

5.           Any constructions, applications, or determinations made by the Board of Directors, pursuant to this Section in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its stockholders.

6.           In the event any provision (or portion thereof) of this Section D shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Section shall remain in full force and effect,

and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its stockholders that each such remaining provision (or portion thereof) of this Section D remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including stockholders owning an amount of stock over the Limit, notwithstanding any such finding.

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E.  Voting Rights of Certain Control Shares.  Notwithstanding any contrary provision of law, the provisions of Subtitle 7 of Title 3 of the MGCL, now or hereafter in force, shall not apply to the voting rights of the Common Stock of the Corporation as to all existing and future holders of Common Stock of the Corporation.

F.  Majority Vote.  Notwithstanding any provision of law requiring the authorization of any action by a greater proportion than a majority of the total number of shares of all classes of capital stock or of the total number of shares of any class of capital stock, such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes outstanding and entitled to vote thereon, except as otherwise provided in the Articles of Incorporation.

ARTICLE 7.  Preemptive Rights.   No holder of the capital stock of the Corporation or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued capital stock of any class or series, or any unissued bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for capital stock of any class or series or carrying any right to purchase stock of any class or series.

ARTICLE 8.  Directors.

A.  Management of the Corporation.  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.  In addition to the powers and authority expressly conferred upon them by Statute or by the Articles of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.

B.  Number, Class and Terms of Directors; Cumulative Voting.  The number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Board.  The directors, other than those who may be elected by the holders of any class or series of Preferred Stock, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the conclusion of the first annual meeting of stockholders, the term of office of the second class to expire at the conclusion of the annual meeting of stockholders one year thereafter and the term of office of the third class to expire at the conclusion of the annual meeting of stockholders two years thereafter, with each director to hold office until his or her successor shall have been duly elected and qualified.  At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified.  Stockholders shall not be permitted to cumulate their votes in the election of directors.

C.  Vacancies.  Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled only by a majority vote of the directors then in office, though less than a quorum. A director so chosen by the remaining directors shall hold office until the next succeeding annual meeting of stockholders, at which time the stockholders shall elect a director to hold office for the balance of the term then remaining.  No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

D.  Removal.  Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, but only for cause and then only by the affirmative vote of the holders of at least 80% of the combined voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of ARTICLE 6 of the Articles of Incorporation) voting together as a single class.

E.  Stockholder Proposals and Nominations of Directors.  For any stockholder proposal to be presented in connection with an annual meeting of stockholders of the Corporation, including any nomination or proposal relating to the nomination of a director to be elected to the Board of Directors of the Corporation, the stockholder must have given timely written notice thereof to the Secretary of the Corporation in the manner and containing the information required by the Bylaws of the Corporation.  Stockholder proposals to be presented in connection with a special meeting of stockholders will be presented by the Corporation only to the extent required by Section 2-502 of the MGCL and the Bylaws of the Corporation.

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ARTICLE 9.  Bylaws.  The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation.  Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of directors which the Corporation would have if there were no vacancies on the Board of Directors.  The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation.  In addition to any vote of the holders of any class or series of stock of this Corporation required by law or by the Articles of Incorporation, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of ARTICLE 6 hereof), voting together as a single class, shall be required to adopt, amend or repeal any provisions of the Bylaws of the Corporation.

ARTICLE 10.  Approval of Certain Business Combinations.

A.Super-majority Voting Requirement; Business Combination Defined. In addition to any affirmative vote required by law or the Articles of Incorporation, and except as otherwise expressly provided in this Section:

1.           any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or

2.           any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder, or any Affiliate of any Interested Stockholder, of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereafter defined) equaling or exceeding 25% or more of the combined assets of the Corporation and its Subsidiaries, or

3.           the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value equaling or exceeding 25% of the combined assets of the Corporation and its Subsidiaries except pursuant to an employee benefit plan of the Corporation or any Subsidiary thereof; or

4.           the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Stockholder or any Affiliate of any Interested Stockholder; or

5.           any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder (a "Disproportionate Transaction"); provided, however, that no such transaction shall be deemed a Disproportionate Transaction if the increase in the proportionate ownership of the Interested Stockholder or Affiliate as a result of such transaction is no greater than the increase experienced by the other stockholders generally;

shall require the affirmative vote of the holders of at least 80% of the voting power of the then-outstanding shares of stock of the Corporation entitled to vote in the election of directors (the "Voting Stock"), voting together as a single class.  Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or by any other provisions of the Articles of Incorporation or any Preferred Stock or in any agreement with any national securities exchange or quotation system or otherwise.

The term “Business Combination” as used in this Article shall mean any transaction which is referred to in any one or more of paragraphs 1 through 5 of Section A of this Article.

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B.Exception to Super-majority Voting Requirement.  The provisions of Section A of this Article shall not be applicable to any particular Business Combination, and such Business Combination shall require only the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote, or such vote as is required by law or by the Articles of Incorporation, if, in the case of any Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation solely in their capacity as stockholders of the Corporation, the condition specified in the following paragraph 1 is met or, in the case of any other Business Combination, all of the conditions specified in either of the following paragraphs 1 and 2 are met:

1.           The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined).

2.           All of the following conditions shall have been met:

(a)           The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by the holders of Common Stock in such Business Combination shall at least be equal to the higher of the following:

(i)           (if applicable) the Highest Per Share Price, including any brokerage commissions, transfer taxes and soliciting dealers= fees, paid by the Interested Stockholder or any of its Affiliates for any shares of Common stock acquired by it (i) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”), or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher.

(ii)           the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (such latter date is referred to in this Article as the “Determination Date”), whichever is higher.

(b)           The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination or consideration other than cash to be received per share by holders of shares of any class of outstanding Voting Stock other than Common Stock shall be at least equal to the highest of the following (it being intended that the requirements of this subparagraph (b) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock):

(i)           (if applicable) the Highest Per Share Price (as hereinafter defined), including any brokerage commissions, transfer taxes and soliciting dealers= fees, paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (i) within the two-year period immediately prior to the Announcement Date, or (ii) in the transaction in which it became an Interested Stockholder, whichever is higher;

(ii)           (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and

(iii)                      the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher.

(c)           The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class of Voting Stock.  If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by the Interested Stockholder.  The price determined in accordance with Section B.2. of this Article shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.

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(d)           After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination; (i) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding stock having preference over the Common Stock as to dividends or liquidation; (ii) there shall have been (X) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors, and (Y) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Disinterested Directors; and (iii) neither such Interested Stockholder nor any of its Affiliates shall have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder.

(e)           After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.

(f)           A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).

C.  Certain Definitions. For the purposes of this Article:

1.           A "Person" shall include an individual, a group acting in concert, a corporation, a partnership, an association, a joint venture, a pool, a joint stock company, a trust, an unincorporated organization or similar company, a syndicate or any other group formed for the purpose of acquiring, holding or disposing of securities.

2.           "Interested Stockholder" shall mean any Person (other than the Corporation or any holding company or Subsidiary thereof) who or which:

(a)           is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or

(b)           is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding Voting Stock; or

(c)           is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.

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3.           A Person shall be a "beneficial owner" of any Voting Stock:

(a)           which such Person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on August 31, 1999; or

(b)           which such Person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding (but neither such Person nor any such Affiliate or Associate shall be deemed to be the beneficial owner of any shares of Voting Stock solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, and with respect to which shares neither such Person nor any such Affiliate or Associate is otherwise deemed the beneficial owner); or

(c)           which are beneficially owned, directly or indirectly within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in effect on August 31, 1994, by any other Person with which such Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purposes of acquiring, holding, voting (other than solely by reason of a revocable proxy as described in Subparagraph (b) of this Paragraph 3) or in disposing of any shares of Voting Stock;

provided, however, that, in the case of any employee stock ownership or similar plan of the Corporation or of any Subsidiary in which the beneficiaries thereof possess the right to vote any shares of Voting Stock held by such plan, no such plan nor any trustee with respect thereto (nor any Affiliate of such trustee), solely by reason of such capacity of such trustee, shall be deemed, for any purposes hereof, to beneficially own any shares of Voting Stock held under any such plan.

4.           For the purpose of determining whether a Person is an Interested Stockholder pursuant to Section C.2., the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of this Section C.3. but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.

5.           “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on August 31, 1999.

6.           "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; Provided, however, that for the purposes of the definition of Interested Stockholder set forth in this Section C.2., the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

7.           "Disinterested Director" means any member of the Board of Directors who is unaffiliated with the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any director who is thereafter chosen to fill any vacancy on the

Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Stockholder, and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors.

8.           "Fair Market Value" means: (a) in the case of stock, the highest closing sales price of the stock during the 30-day period immediately preceding the date in question of a share of such stock on the Nasdaq System or any system then in use, or, if such stock is admitted to trading on a principal United States securities exchange registered under the Securities Exchange Act of 1934, Fair Market Value shall be the highest sale price reported during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of a share of such stock as determined by the Board of Directors in good faith, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or in combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock, and (b) in the case of property other than cash or stock, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith.

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9.           Reference to “Highest Per Share Price” shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock.

10.           In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in Sections B.2.(a) and B.2.(b) of this ARTICLE 10 shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.

D.  Construction and Interpretation.  A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine for the purposes of this Article, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Stockholder; (b) the number of shares of Voting Stock beneficially owned by any person; (c) whether a person is an Affiliate or Associate of another; and (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value equaling or exceeding 25% of the combined assets of the Corporation and its Subsidiaries.  A majority of the Disinterested Directors shall have the further power to interpret all of the terms and provisions of this Article.

E.Fiduciary Duty.  Nothing contained in this Article shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

F.  Maryland Business Combination Statute.  Notwithstanding any contrary provision of law, the provisions of Sections 3-601 through 3-604 of the MGCL, as now and hereafter in force, shall not apply to any business combination (as defined in Section 3-601(e) of the MGCL, as now and hereafter in force), of the Corporation.

ARTICLE 11.  Evaluation of Certain Offers.  The Board of Directors of the Corporation, when evaluating any offer of another Person (as defined in ARTICLE 10 hereof) to (A) make a tender or exchange offer for any equity security of the Corporation, (B) merge or consolidate the Corporation with another corporation or entity, or (C) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, may, in connection with the exercise of its judgment in determining what is in the best interest of the Corporation and its stockholders, give due consideration to all relevant factors, including, without limitation, the social and economic effect of acceptance of such offer on the Corporation's present and future customers and employees and those of its Subsidiaries (as defined in ARTICLE 10 hereof); on the communities in which the Corporation and its Subsidiaries operate or are located; on the ability of the Corporation to fulfill its corporate objectives as a financial institution holding company and on the ability of its subsidiary financial institution to fulfill the objectives of a federally insured financial institution under applicable statutes and regulations.

ARTICLE 12.Indemnification, etc. of Directors and Officers.

A.  Indemnification.     The Corporation shall indemnify (1) its current and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the MGCL now or hereafter in force (but, in the case of any amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), including the advancement of expenses under the procedures and to the fullest extent permitted by law, and (2) other employees and agents to such extent as shall be authorized by the Board of Directors and permitted by law; provided, however, that, except as provided in Section B hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

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B.  Procedure.  If a claim under Section A of this Article is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemniteemay at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim.  If successful in whole or in part in any such suit, the indemnitee shall also be entitled to be reimbursed the expense of prosecuting or defending such suit.  It shall be a defense to any action for advancement of expenses that the Corporation has not received both (i) an undertaking as required by law to repay such advances in the event it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the indemnitee of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met.  Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit.  In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article or otherwise shall be on the Corporation.

C.  Non-Exclusivity.  The rights to indemnification and to the advancement of expenses conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Articles of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise.

D.  Insurance.  The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the MGCL.

E.  Miscellaneous.  The Corporation shall not be liable for any payment under this Article in connection with a claim made by any indemnitee to the extent such indemnitee has otherwise actually received payment under any insurance policy, agreement, or otherwise, of the amounts otherwise indemnifiable hereunder.  The rights to indemnification and to the advancement of expenses conferred in Sections A and B of this Article shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators.

Any repeal or modification of this Article shall not in any way diminish any rights to indemnification or advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to events occurring, or claims made, while this Article is in force.

ARTICLE 13.  Limitation of Liability.  An officer or director of the Corporation, as such, shall not be liable to the Corporation or its stockholders for money damages, except (i) to the extent that it is proved that the person actually received an improper benefit or profit in money, property or services for the amount of the benefit or profit in money, property or services actually received; (ii) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person=s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding; or (iii) to the extent otherwise required by the MGCL.  If the MGCL is amended to further eliminate or limit the personal liability of officers and directors, then the liability of officers and directors of the Corporation shall be eliminated or limited to the fullest extent permitted by MGCL, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification.

11

ARTICLE 14. Amendment of the Articles of Incorporation.  The Corporation reserves the right to amend or repeal any provision contained in the Articles of Incorporation in the manner prescribed by the MGCL and all rights conferred upon stockholders are granted subject to this reservation; Provided, however, that, notwithstanding any other provision of the Articles of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by the Articles of Incorporation, the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (after giving effect to the provisions of ARTICLE 6), voting together as a single class, shall be required to amend or repeal this ARTICLE 14, Sections B, D or E of ARTICLE 6, ARTICLE 8, ARTICLE 9, ARTICLE 10 or ARTICLE 12.

ARTICLE 15.  Name and Address of Incorporator.  The name and mailing address of the sole incorporator are as follows:

NAME	MAILING ADDRESS
R. Donn Roberts	110 E. Charles Street
	Muncie, Indiana  47305

IN WITNESS WHEREOF, said MutualFirst Financial, Inc. has caused these Articles of Restatement of Articles of Incorporation to be executed by R. Donn Roberts, its President and Chief Executive Officer, and attested to by Rosalie Petro, its Corporate Secretary, this 23^rd day of January, 2001.

MUTUALFIRST FINANCIAL, INC.

By  /s/ Rosalie Petro	By /s/ R. Donn Roberts
Rosalie Petro, Secretary	R. Donn Roberts, President and Chief Executive Officer

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EX-31.1

CERTIFICATIONSExhibit 31.1

I, David W. Heeter certify that:

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

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

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

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

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

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

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

e) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting;

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

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

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

Date: August 8, 2008

/s/ David W. Heeter

David W. Heeter,

President and Chief Executive Officer

EX-31.2

CERTIFICATIONSExhibit 31.2

I, Timothy J. McArdle, certify that:

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

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

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

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

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

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

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

e) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting;

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

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

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

Date: August 8, 2008

/s/ Timothy J. McArdle

Timothy J. McArdle,

Senior Vice President, Treasurer, and Chief Financial Officer

EX-32

EXHIBIT 32

SECTION 1350 CERTIFICATION

Each of the undersigned hereby certifies in his capacity as an officer of MutualFirst Financial, Inc. (the “Registrant”) that the quarterly report of the Registrant on Form 10-Q for the period ended June 30, 2008 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the consolidated financial condition of the Registrant at the end of such period and the results of operations of the Registrant for such period.

Date: August 8, 2008	By: /s/ David W. Heeter
	David W. Heeter
	President and Chief Executive Officer
Date: August 8, 2008	By: /s/ Timothy J. McArdle
	Treasurer and Chief Financial Officer
	(Principal Financial and Accounting Officer)