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 endedSeptember 30, 2009                      

or

¨ 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 No.)

110 East Charles Street
Muncie, Indiana	47305
(Address of principal executive offices)	(Zip Code)

(765) 747-2800

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of the Registrant’s common stock, with $.01 par value, outstanding as of November 6, 2009 was 6,984,754.

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	16
	and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	26
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Changes in Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Submission of Matters to a Vote of Security Holders	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
Signature Page		28
Exhibits

PART 1 FINANCIAL INFORMATION

ITEM 1. Financial Statements

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY

Consolidated Condensed Balance Sheets

	September 30,			December 31,
	2009			2008
	(Unaudited)
Assets
Cash	$	17,323,802		$	21,654,283
Interest-bearing demand deposits		37,082,228			18,049,169
Cash and cash equivalents		54,406,030			39,703,452
Investment securities available for sale		117,289,790			77,254,925
Investment securities held to maturity		9,011,484			9,675,891
Total investment securities		126,301,274			86,930,816
Loans held for sale		2,658,096			1,541,110
Loans		1,084,135,710			1,128,239,260
Allowance for loan losses		(16,620,900	)		(15,106,780	)
Net loans		1,067,514,810			1,113,132,480
Premises and equipment		34,820,917			36,500,979
Federal Home Loan Bank of Indianapolis stock, at cost		18,631,500			18,631,500
Investment in limited partnerships		4,891,437			4,560,690
Cash surrender value of life insurance		43,857,747			42,637,240
Core deposit and other intangibles		6,240,073			7,406,572
Deferred income tax benefit		20,619,188			21,237,513
Other assets		17,212,994			16,545,134
Total assets	$	1,397,154,066		$	1,388,827,486
Liabilities
Deposits
Non-interest-bearing	$	95,257,327		$	93,393,362
Interest bearing		936,172,124			869,120,808
Total deposits		1,031,429,451			962,514,170
Federal Home Loan Bank advances		204,220,154			263,112,728
Other borrowings		15,267,765			15,991,690
Other liabilities		15,299,757			16,693,959
Total liabilities		1,266,217,127			1,258,312,547
Commitments and Contingent Liabilities
Stockholders' Equity
Preferred stock, $.01 par value
Authorized and unissued — 5,000,000 shares
Issued and outstanding — 32,382 and 32,382 shares; liquidation preference $1,000 per share		324			324
Common stock, $.01 par value
Authorized — 20,000,000 shares Issued and outstanding —6,984,754 and 6,984,754 shares		69,847			69,847
Additional paid-in capital - preferred stock		31,599,822			31,461,848
Additional paid-in capital - common stock		72,536,045			72,610,939
Retained earnings		30,646,256			29,989,003
Accumulated other comprehensive loss		(2,564,669	)		(2,027,956	)
Unearned employee stock ownership plan (ESOP) shares		(1,350,686	)		(1,589,066	)
Total stockholders' equity		130,936,939			130,514,939
Total liabilities and stockholders' equity	$	1,397,154,066		$	1,388,827,486

See notes to consolidated condensed financial statements.

1

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY

Consolidated Condensed Statements of Income

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Interest Income
Loans receivable, including fees	$	16,184,190		$	17,602,717		$	49,982,413		$	43,398,821
Investment securities:
Mortgage-backed securities		1,013,129			511,684			2,909,018			889,579
Federal Home Loan Bank stock		91,966			244,137			260,666			497,428
Other investments		385,104			421,927			1,287,126			1,188,876
Deposits with financial institutions		7,516			44,194			34,877			95,980
Total interest income		17,681,905			18,824,659			54,474,100			46,070,684
Interest Expense
Passbook savings		63,973			70,492			196,019			211,857
Certificates of deposit		4,674,227			5,158,672			14,783,903			13,915,688
Daily Money Market accounts		139,841			225,863			389,655			411,780
Demand and NOW acounts		210,342			433,125			604,696			1,236,322
Federal Home Loan Bank advances		2,084,830			2,886,774			6,786,852			7,042,059
Other interest expense		265,627			214,482			766,130			257,579
Total interest expense		7,438,840			8,989,408			23,527,255			23,075,285
Net Interest Income		10,243,065			9,835,251			30,946,846			22,995,399
Provision for losses on loans		1,650,000			912,500			4,850,000			2,257,500
Net Interest Income After Provision for Loan Losses		8,593,065			8,922,751			26,096,846			20,737,899
Other Income
Service fee income		1,955,533			1,815,138			5,521,954			4,339,855
Net realized gain (loss) on sale of securities		59,870			(2,769,982	)		218,714			(2,632,549	)
Equity in losses of limited partnerships		(77,744	)		(44,644	)		(233,231	)		(91,931	)
Commissions		709,915			590,764			2,197,637			1,190,437
Net gains on sales of loans		527,201			1,050,143			2,171,561			1,361,722
Net servicing fees		55,542			61,987			192,565			117,467
Increase in cash surrender value of life insurance		384,622			356,896			1,183,566			909,396
Other income		33,041			51,943			121,339			147,197
Total other income		3,647,980			1,112,245			11,374,105			5,341,594
Other Expenses
Salaries and employee benefits		5,822,553			5,277,645			16,970,246			12,988,176
Net occupancy expenses		670,690			479,060			2,065,004			1,378,896
Equipment expenses		479,167			449,047			1,295,430			1,147,797
Data processing fees		388,315			359,143			1,102,983			869,344
Automated teller machine		274,218			324,651			834,699			722,604
Deposit insurance		416,116			194,433			1,849,196			305,907
Professional fees		310,489			381,191			972,479			821,310
Advertising and promotion		407,616			443,827			1,132,616			991,238
Software subscriptions and maintenance		367,494			299,245			1,044,762			634,769
Supplies		109,313			429,565			377,917			630,235
Intangible amortization		371,785			287,944			1,166,499			402,104
Other expenses		1,329,418			1,208,537			3,817,551			2,614,827
Total other expenses		10,947,174			10,134,288			32,629,382			23,507,207
Income (Loss) Before Income Tax		1,293,871			(99,292	)		4,841,569			2,572,286
Income tax expense (benefit)		52,000			(458,000	)		489,000			(176,000	)
Net Income		1,241,871			358,708			4,352,569			2,748,286
Preferred stock dividends and amortization		450,766			-			1,352,298			-
Net Income Available to Common Shareholders		791,105			358,708			3,000,271			2,748,286
Basic earnings per common share	$	0.12		$	0.06		$	0.44		$	0.58
Diluted earnings per common share	$	0.12		$	0.06		$	0.44		$	0.58
Dividends per common share	$	0.12		$	0.16		$	0.36		$	0.48

See notes to consolidated condensed financial statements.

2

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY

Consolidated Condensed Statement of Stockholders' Equity

For the Nine Months Ended September 30, 2009

(Unaudited)

	Common Stock							Preferred Stock												Accumulated
					Additional							Additional								Other			Unearned
	Shares				paid-in			Shares				paid-in		Comprehensive			Retained			Comprehensive			ESOP
	Outstanding		Amount		capital			Outstanding		Amount		capital		Income			Earnings			Income (Loss)			shares			Total
Balances, December 31, 2008		6,984,754	$	69,847	$	72,610,939			32,382	$	324	$	31,461,848				$	29,989,003		$	(2,027,956	)	$	(1,589,066	)	$	130,514,939
Comprehensive income
Net income for the period														$	4,352,569			4,352,569									4,352,569
Other comprehensive loss, net of tax
Net unrealized losses on securities															(536,713	)					(536,713	)					(536,713	)
Comprehensive income														$	3,815,856
ESOP shares earned						(74,894	)																	238,380			163,486
Amortization of preferred stock													137,974					(137,974	)								0
Cash dividends ($.36 per common share)																		(2,513,921	)								(2,513,921	)
Cash dividends - preferred stock																		(1,043,421	)								(1,043,421	)
Balances, September 30, 2009		6,984,754	$	69,847	$	72,536,045			32,382	$	324	$	31,599,822				$	30,646,256		$	(2,564,669	)	$	(1,350,686	)	$	130,936,939

See notes to consolidated condensed financial statements.

3

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	September 30,
	2009			2008
Operating Activities
Net income	$	4,352,569		$	2,748,286
Items not requiring (providing) cash
Provision for loan losses		4,850,000			2,257,500
Depreciation and amortization		3,364,841			2,112,745
Deferred income tax		794,616			(174,000	)
Loans originated for sale		(144,061,228	)		(36,149,470	)
Proceeds from sales of loans held for sale		143,498,650			35,629,776
Gains on sales of loans held for sale		(2,171,561	)		(1,361,722	)
Gain on sale of premises and equipment		(187,651	)		-
Gain on available for sale securities		(5,716	)		-
Other equity adjustments		163,486			-
Change in
Interest receivable and other assets		2,064,586			475,375
Interest payable and other liabilities		(1,242,231	)		(318,160	)
Cash value of life insurance		(1,183,566	)		(909,396	)
Other adjustments		(693,201	)		213,439
Net cash provided by operating activities		9,543,594			4,524,373
Investing Activities
Net change in interest earning deposits		-			100,000
Acquired securities from sale of mutual funds					(9,863,577	)
Purchases of securities available for sale
Available for sale		(59,500,611	)		(40,564,802	)
Held to maturity		(500,000	)		-
Proceeds from maturities and paydowns of securities:
Available for sale		14,634,228			8,259,512
Held to maturity		1,256,157			-
Proceeds from sale of available-for-sale securities		4,505,678			32,548,359
Net change in loans		36,172,352			1,552,975
Proceeds from sale of loans transferred to held for sale					51,577,741
Purchases of premises and equipment		(831,705	)		(2,664,940	)
Proceeds from sale of premises and equipment		1,033,151			-
Proceeds from real estate owned sales		1,300,029			1,308,914
Cash received (paid) in acquisition, net		-			343,228
Other investing activities		746,823			(224,497	)
Net cash provided by (used in) investing activities		(1,183,898	)		42,372,913
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits		3,065,369			(10,594,811	)
Certificates of deposits		65,849,912			(9,373,975	)
Proceeds from FHLB advances		32,500,000			372,025,000
Repayment of FHLB advances		(90,606,874	)		(395,838,058	)
Proceeds from other borrowings		-			11,500,000
Repayment of other borrowings		(756,210	)		(4,383,382	)
Stock repurchased		-			(1,721,671	)
Cash dividends paid		(3,557,342	)		(2,448,256	)
Other financing activities		(151,973	)		1,873,678
Net cash provided by (used in) financing activities		6,342,882			(38,961,475	)
Net Change in Cash and Cash Equivalents		14,702,578			7,935,811
Cash and Cash Equivalents, Beginning of Year		39,703,452			23,648,171
Cash and Cash Equivalents, End of Year	$	54,406,030		$	31,583,982
Additional Cash Flows Information
Interest paid	$	24,029,695		$	23,624,841
Income tax paid		550,000			900,000
Transfers from loans to foreclosed real estate		3,773,583			2,334,363
Mortgage servicing rights capitalized		1,617,153			759,950

See Notes to Consolidated Condensed Financial Statements

4

MutualFirst Financial, Inc. and Subsidiaries

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

Note 1:  Basis of Presentation

The consolidated condensed financial statements include the accounts of MutualFirst Financial, Inc. (the “Company”), its wholly owned subsidiary MutualBank, a federally chartered savings bank (“Mutual”), Mutual’s wholly owned subsidiaries, First MFSB Corporation, Mishawaka Financial Services, 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 2008 filed with the Securities and Exchange Commission.

The interim consolidated financial statements at September 30, 2009 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, 2008 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

Note 2: Earnings per share

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

	Three Months Ended Ended September 30,
	2009							2008
				Weighted-						Weighted-
				Average		Per-Share				Average		Per-Share
	Income			Shares		Amount		Income		Shares		Amount
	(000's)							(000's)
Basic Earnings Per Share
Net income	$	1,242			6,845,697			$	359		6,188,036
Dividends and accretion on preferred stock		(451	)						-
Income available to common shareholders	$	791			6,845,697	$	0.12	$	359		6,188,036	$	0.06
Effect of Dilutive securities
Stock options and RRP grants					328						16,847
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	791			6,846,025	$	0.12	$	359		6,204,883	$	0.06
	Nine Months Ended Ended September 30,
	2009							2008
				Weighted-						Weighted-
				Average		Per-Share				Average		Per-Share
	Income			Shares		Amount		Income		Shares		Amount
	(000's)							(000's)
Basic Earnings Per Share
Net income	$	4,353			6,836,345			$	2,748		4,723,430
Dividends and accretion on preferred stock		(1,352	)
Income available to common shareholders	$	3,001			6,836,345	$	0.44	$	2,748		4,723,430	$	0.58
Effect of Dilutive securities
Stock options and RRP grants					110						5,615
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	3,001			6,836,455	$	0.44	$	2,748		4,729,045	$	0.58

Options of 581,338 and 451,838 shares and warrants of 625,135 and 0 were not included in the calculation above due to being anti-dilutive to earnings per share as of September 30, 2009 and September 30, 2008.

5

Note 3: Future Accounting Pronouncements

In June 2009, the FASB issued new a new standard regarding accounting for transfers and servicing of financial assets and extinguishments of liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures.

At the same time, FASB also issued another new standard regarding consolidation of variable interest entities, and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance.

The new standards will require a number of new disclosures. The first enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and an entity’s continuing involvement in transferred financial assets. The second will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements.

The Federal Reserve is reviewing regulatory capital requirements associated with the adoption of the new accounting standards by financial institutions. In conducting this review, the Federal Reserve is considering a broad range of factors including the maintenance of prudent capital levels, the record of recent bank experiences with off-balance sheet vehicles, and the results of the recent Supervisory Capital Assessment Program (SCAP). As part of the SCAP, participating banking organizations' capital adequacy was assessed using assumptions consistent with standards ultimately included in these two new standards.

The two new standards discussed above will be effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity. Early application is not permitted.  The Company is currently evaluating the potential impact, if any, of the adoption of these two statements on the Company.

On June 29, 2009, the FASB issued an accounting pronouncement establishing the FASB Accounting Standards Codification TM (the “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities.  This pronouncement was effective for financial statements issued for interim and annual periods ending after September 15, 2009, for most entities.  On the effective date, all non-SEC accounting and reporting standards will be superseded.  The Company adopted this new accounting pronouncement for the quarterly period ended September 30, 2009, as required, and adoption did not have a material impact on the statements taken as a whole.

6

Note 4: Investments

The amortized cost and approximate fair values of securities are as follows:

	September 30, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale Securities
Mortgage-backed securities	$	23,743	$	845	$	(58	)	$	24,530
Collateralized mortgage obligations		70,673		1,700		(665	)		71,708
Municipals		10,109		478		(12	)		10,575
Small Business Administration		166		—		(5	)		161
Corporate obligations		14,650		202		(6,164	)		8,688
Marketable equity securities		1,675		—		(47	)		1,628
Total investment securities	$	121,016	$	3,225	$	(6,951	)	$	117,290
Held to Maturity Securities
Mortgage-backed securities	$	5,016	$	147	$	(1,711	)	$	3,452
Collateralized mortgage obligations		3,495		31		(874	)		2,652
Federal Agency		500		5		—			505
Total investment securities	$	9,011	$	183	$	(2,585	)	$	6,609

The amortized cost and fair value of available-for-sale securities and held-to-maturity securities at September 30, 2009, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
Description Securities	Amortize Cost		Fair Value		Amortized Cost		Fair Value
Corporate obligations due
Within one year	$	100	$	100	$	—	$	—
One to five years		5,537		5,734		—		—
Five to ten years		—		—		—		—
After ten years		9,013		2,854		—		—
		14,650		8,688		—		—
Mortgage-backed securities		23,743		24,530		5,016		3,452
Collateralized mortgage obligations		70,673		71,708		3,495		2,652
Federal Agency		—		—		500		505
Municipals		10,109		10,575		—		—
Small Business Administration		166		161		—		—
Marketable equity securities		1,675		1,628		—		—
Totals	$	121,016	$	117,290	$	9,011	$	6,609

7

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $4.0 million at September 30, 2009.

Gross gains of $206,000 and gross losses of $0 resulting from sales of available-for-sale securities were realized for the first nine months of 2009. Other than temporarily impaired losses were recognized on available for sale investments of $200,000. The realized gain on sale of securities reported also reflects a gain on sale of subsidiary of $137,000 and the sale of Mastercard stock of $75,000.

Certain investments in debt and marketable equity securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at September 30, 2009 was $20.7 million, an increase from $18.9 million at December 31, 2008, which is approximately 18 percent and 22 percent of the Company’s investment portfolio at those dates. The dollar increase was primarily due to increased portfolio.

Except as discussed below, management believes the declines in fair value for these securities are temporary.

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

The following tables show our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2009:

	September 30, 2009
	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Available for Sale
Mortgage-backed securities	$	1,680	$	(58	)	$	—	$	—		$	1,680	$	(58	)
Collateralized mortgage obligations		8,144		(55	)		4,669		(610	)		12,813		(665	)
Small Business Administration		—		—			161		(5	)		161		(5	)
Corporate obligations		—		—			3,361		(6,164	)		3,361		(6,164	)
Marketable equity securities		—		—			1,627		(47	)		1,627		(47	)
Municipals		1,030		(12	)		—		—			1,030		(12	)
Total temporarily impaired securities	$	10,854	$	(125	)	$	9,818	$	(6,826	)	$	20,672	$	(6,951	)
Held to Maturity
Mortgage-backed securities	$	91	$	(1	)	$	1,076	$	(1,710	)	$	1,167	$	(1,711	)
Collateralized mortgage obligations		394		(3	)		842		(871	)		1,236		(874	)
Total temporarily impaired securities	$	485	$	(4	)	$	1,918	$	(2,581	)	$	2,403	$	(2,585	)

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Collateralized Mortgage Obligations (CMO)

The unrealized losses on the Company’s investment in CMOs were caused by interest rate changes. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is more likely than not the Company will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2009.

Corporate Obligations

The Company’s unrealized loss on investments in corporate obligations primarily relates to investments in pooled trust securities. The unrealized losses were primarily caused by (a) a recent decrease in performance and regulatory capital resulting from exposure to subprime mortgages and (b) a recent sector downgrade by several industry analysts. The Company currently expects some of the securities to settle at a price less than the amortized cost basis of the investment (that is, the Company expects to recover less than the entire amortized cost basis of the security). The Company has recognized a loss equal to the credit loss for these securities, establishing a new, lower amortized cost basis. The credit loss was calculated by comparing expected discounted cash flows based on performance indicators of the underlying assets in the security to the carrying value of the investment. Because the Company does not intend to sell the investment and it is likely the Company will not be required to sell the investments before recovery of its new, lower amortized cost basis, which may be maturity, it does not consider the remainder of the investments to be other-than-temporarily impaired at September 30, 2009.

Credit Losses Recognized on Investments

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

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

	Accumulated Credit Losses
	2009
Credit losses on debt securities held
Beginning of year	$	(1,350	)
Additions related to increases in previously recognized other-than-temporary losses		(200	)
As of September 30, 2009	$	(1,550	)

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Note 5: Accumulated Other Comprehensive Loss

Other comprehensive loss components and related taxes were as follows:

	2009
Net unrealized gain on securities available-for-sale	$	98
Net unrealized loss on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income		(622	)
Less reclassification adjustment for realized loss included in income		(6	)
Other comprehensive income loss, before tax effect		(530	)
Tax benefit		(7	)
Other comprehensive loss	$	(537	)

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

	2009
Net unrealized loss on securities available-for-sale	$	(3,105	)
Net unrealized loss on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income		(622	)
Post retirement benefit plan		(109	)
		(3,836	)
Tax effect		1,271
Net-of-tax amount	$	(2,565	)

Note 6: Disclosures About Fair Value of Assets and Liabilities

FASB Codification Topic 820 (ASC 820), Fair Value Measurements and Disclosures, 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. ASC 820 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

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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

Items Measured at Fair Value on a Recurring Basis

Following is a description of the valuation methodologies and inputs used for instruments measured at fair value on a recurring basis and recognized in the accompanying 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 obligations, small business administration, marketable equity, municipal, federal agency and certain corporate obligation securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain corporate obligation securities.

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

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			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2009
Mortgage-backed securities	$	24,530	$	—	$	24,530	$	—
Collateralized mortgage obligations		71,708		—		71,708		—
Small Business Administration		161		—		161		—
Corporate obligations		8,688		—		5,733		2,955
Marketable equity securities		1,628		—		1,628		—
Municipals		10,575		—		10,575		—
Available-for-sale securities	$	117,290	$	—	$	114,335	$	2,955
December 31, 2008
Mortgage-backed securities	$	15,163	$	—	$	15,163	$	—
Collateralized mortgage obligations		43,639		—		43,639		—
Federal agencies		502		—		502		—
Small Business Administration		70		—		70		—
Corporate obligations		15,527		—		9,210		6,317
Marketable equity securities		1,497		—		1,497		—
Municipals		857		—		857		—
Available-for-sale securities	$	77,255	$	—	$	70,938	$	6,317

The following is a reconciliation of the beginning and ending balances for the three months ended September 30, 2009 and 2008 of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	2009		2008
Beginning balance	$	2,889	$	5,773
Total realized and unrealized gains and losses
Included in net income		—		(200	)
Included in other comprehensive loss		46		1,146
Purchases, issuances and settlements		20		(4	)
Transfers in/out of Level 3		—		500
Ending balance	$	2,955	$	7,215

The following is a reconciliation of the beginning and ending balances for the nine months ended September 30, 2009 and 2008 of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

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	2009			2008
Beginning balance	$	6,317		$	9,923
Total realized and unrealized gains and losses
Included in net income		(200	)		(200	)
Included in other comprehensive loss		(3,187	)		(3,004	)
Purchases, issuances and settlements		25			(4	)
Transfers in/out of Level 3		—			500
Ending balance	$	2,955		$	7,215
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	$	200		$	—

Items Measured at Fair Value on a Non-Recurring Basis

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

Impaired Loans and Other Real Estate Owned

Loans for which it is probable that Mutual will not collect all principal and interest due according to contractual terms are measured for impairment in accordance with the provisions of FASB Codification Topic 310-40 (ASC310-40), Troubled Debt Restructurings by Creditors. Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans or, where a loan is determined not to be collateral dependent.

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

Thefair value of real estate is generally determined based on appraisals by qualified licensed appraisers. Theappraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is notavailable, the fair value may be determined by using a cash flow analysis.

Impaired loans are classified within Level 3 of the fair value hierarchy.

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Mortgage Servicing Rights

We initially measure our mortgage servicing rights at fair value, and amortize them over the period of estimated net servicing income. They are periodically assessed for impairment based on fair value at the reporting date. Mortgage servicing rights do not trade in an active market with readily observable prices. Accordingly, the fair value is estimated based on a valuation model which calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates and other ancillary income, including late fees. The fair value measurements are classified as Level 3.

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

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2009
Impaired loans	$	3,857	$	—	$	—	$	3,857
Other real estate owned		3,173		—		—		3,173
Mortgage servicing rights		1,429		—		—		1,429
December 31, 2008
Impaired loans	$	5,997	$	—	$	—	$	5,997
Mortgage servicing rights		2,776		—		—		2,776

The estimated fair values of the Company’s financial instruments not carried at fair value in the consolidated condensed balance sheet as of September 30, 2009 are as follows:

	Carrying Amount		Fair Value
Assets
Cash and cash equivalents	$	54,406	$	54,406
Securities held to maturity		9,011		6,609
Loans held for sale		2,658		2,679
Loans		1,067,515		1,088,480
Stock in FHLB		18,632		18,632
Interest receivable		4,872		4,872
Liabilities
Deposits		1,031,429		999,271
FHLB advances		204,220		212,357
Other borrowings		15,268		15,268
Interest payable		1,614		1,614
Advances by borrowers for taxes and insurance		3,077		3,077
Off-balance sheet commitments		—		—

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The following methods and assumptions were used to estimate the fair value of each class of financial instruments listed above:

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

Interest-Bearing Deposits - The fair value of interest-bearing deposits approximates carrying value.

Investment and Mortgage-Backed Securities - Fair values are based on quoted market prices.

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

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

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

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

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

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

Other Borrowings- The fair value of other borrowings are estimated using a discount calculation based on current rates.

Advances by Borrowers for Taxes and Insurance - The fair value approximates carrying value.

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

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Note 7: Subsequent Events

Subsequent events have been evaluated through November 13, 2009, the date the consolidated condensed financial statements were available to be issued.

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 MutualBank (“Mutual”) upon the conversion of Mutual from a federal mutual savings bank to a federal stock savings bank.

Mutual was originally organized in 1889 and currently conducts its business from thirty-three full service financial centers located in Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash counties, Indiana, with its main office located in Muncie. Mutual also has trust offices in Carmel and Crawfordsville, Indiana and a loan origination office in New Buffalo, Michigan. 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 subsidiaries include, Mutual Federal Investment Company (“MFIC”) and Mishawaka Financial Services. MFIC is a Nevada corporation holding approximately $107 million in investments. MFIC currently owns one subsidiary, Mutual Federal REIT. The assets of Mutual Federal REIT consist of approximately $95 million in one-to four-family mortgage loans. Mishawaka Financial Services was acquired with MFB Corp. and is engaged in the sale of life and health insurance to customers of the bank.

The following should be read in conjunction with the Management’s Discussion and Analysis in the Company’s December 31, 2008 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 77 to 81 of the Annual Report on Form 10-K for the year ended December 31, 2008. 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.

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Allowance for Loan Losses

The allowance for loan losses is a significant estimate that can and does change based on management’s assumptions about specific borrowers and current general economic and business conditions, among other factors. 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.

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

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Intangible Assets

The Company periodically assesses the potential impairment of its core deposit intangible. 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.

Securities

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

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

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

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

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

Income Tax Accounting

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

Forward Looking Statements

This 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.

19

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 generally 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 generally impacted unfavorably as rates on interest-earning assets would increase at a slower rate than rates on interest-bearing liabilities. The acquisition of MFB Corp. helped reduce the interest rate risk exposure of Mutual primarily due to changes in the loan composition, by increasing the percentage of loans with adjustable rates and reducing the average duration of the loan portfolio. This decline in Mutual’s liability sensitive exposure should provide for less net portfolio value volatility with future rate movements.

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, in addition to the MFB Corp. acquisition, 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 44% at the end of 2004 to 55% as of September 30, 2009. 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 has increased 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 was 37% at September 30, 2009 compared to 39% at the end of the third quarter 2008. The remaining total deposits are mostly retail certificates of deposit, which continue to provide stable funding for the Company. These are ongoing strategies that are dependent on current market conditions and competition.

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During the first nine months of 2009, in keeping with its strategic objective to reduce interest rate risk exposure, the Company also sold $143.5 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 $2.2 million.

On July 18, 2008, the Company completed the purchase of MFB Corp. The assets purchased primarily included residential mortgage loans of $167.9 million, consumer loans of $48.5 million, commercial real estate loans of $91.6 million and commercial business loans of $75.5 million. The liabilities assumed included $331.1 million in deposits and $96.4 million in borrowings. This purchase of MFB Corp was consistent with the Company’s strategic objective to change the re-pricing structure of its interest earning assets from longer term to shorter term and reduce interest rate risk to net interest income.

Results of operations also depend upon the level of the Company’s non-interest income, including fee income, service charges, commissions, and the level of its non-interest expense, including general and administrative expenses. The acquisition of MFB Corp. added trust services to Mutual, which are being leveraged through Mutual’s existing footprint. The Company also opened two new branches in Elkhart County in 2008. The intent of these initiatives has been to increase income over the long term. However, on a short term basis, expenses relating to expanding trust services and new branches will have the affect of increasing non-interest expense with limited immediate offsetting income.

Financial Condition

Assets totaled $1.4 billion at September 30, 2009, an increase from December 31, 2008 of $8.3 million, or 0.6%. Gross loans, excluding loans held for sale, decreased $44.1 million, or 3.9%. Increases in commercial loans of $4.4 million, or 1.3% were offset by decreases in consumer loans of $2.7 million, or 1.0% and residential mortgage loans held in the portfolio of $45.8 million, or 8.6%. Residential mortgage loans held for sale increased $1.1 million and mortgage loans sold during the first nine months of 2009 totaled $143.5 million compared to $86.6 million sold in the first nine months of last year. Mortgage loan originations for the nine months ended September 30, 2009 were approximately $190 million, a 92% increase over the same time period in 2008. Despite the increased originations, mortgage loan sales have led to a decrease in loan balances. Increases in investment securities available for sale of $40.0 million, or 51.8% primarily due to investments in highly rated municipal, corporate and mortgage-backed securities and cash and cash equivalents of $14.7 million helped offset the decreases in the loan portfolio.

21

Allowance for loan losses was $16.6 million at September 30, 2009, an increase of $1.5 million from December 31, 2008. Net charge offs for the quarter ended September 30, 2009 were $1.4 million, or .50% of average loans on an annualized basis compared to $253,000, or .09% of average loans for the comparable period in 2008. Net charge offs for the first nine months of 2009 were $3.3 million, or .40% of average loans on an annualized basis compared to $1.3 million, or .20% of average loans for the comparable period in 2008. On a linked quarter basis net charge offs increased from an annualized .36% of average loans for the quarter ended June 30, 2009 to .50% for the current quarter. The allowance for loan losses as a percentage of non-performing loans and total loans was 50.68% and 1.53%, respectively at September 30, 2009 compared to 57.05% and 1.49%, respectively at June 30, 2009.

Total deposits were $1.0 billion at September 30, 2009 an increase of $68.9 million, or 7.2% from December 31, 2008. This increase was due primarily to increases in certificates of deposit of $65.4 million and transactional deposits of $3.5 million. Total borrowings decreased $59.6 million to $219.5 million at September 30, 2009 from $279.1 million at December 31, 2008 primarily due to the payment of maturing and variable rate FHLB advances.

Stockholders’ equity was $130.9 million at September 30, 2009, an increase of $422,000, or 0.3% from December 31, 2008. The increase was due primarily to net income of $4.4 million and Employee Stock Ownership Plan (ESOP) shares earned of $163,000. These increases were partially offset by increases in accumulated other comprehensive losses of $537,000 from a loss of $2.0 million at December 31, 2008 to a loss of $2.6 million at September 30, 2009 due to increased discount rates used to price trust preferred securities in an inactive market. Other offsets to net income include dividend payments of $2.5 million to common shareholders and $1.0 million to preferred shareholders. The Bank’s risk-based capital ratio is well in excess of “well-capitalized” levels as defined by all regulatory standards.

Comparison of the Operating Results for the Three Months Ended September 30, 2009 and 2008

Net income available to common shareholders for the third quarter ended September 30, 2009 was $791,000, or $.12 for basic and diluted earnings per common share. This compared to net income for the same period in 2008 of $359,000, or $.06 for basic and diluted earnings per common share. Annualized return on assets was .23% and return on average tangible common equity was 3.48% for the third quarter of 2009 compared to .11% and 1.77% respectively, for the same period last year.

Net interest income before the provision for loan losses increased $407,000 from $9.8 million for the three months ended September 30, 2008 to $10.2 million for the three months ended September 30, 2009. The primary reason for the increase was an increase in average earning assets of $86.9 million due to the acquisition of MFB Corp in the third quarter of 2008. This increase was partially offset by a decrease in net interest margin of 10 basis points to 3.21% in the third quarter 2009 compared to 3.31% for the third quarter 2008. The decrease in the interest margin was due to rates on interest earning assets repricing more than those on interest earning liabilities.

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The provision for loan losses for the third quarter of 2009 was $1.7 million, an increase from $738,000 for last year’s comparable period. The increase was due primarily to an increased loan portfolio, increased net charge offs, increased non-performing loans and increased delinquencies over the comparable period in 2008. Non-performing loans to total loans at September 30, 2009 were 3.02% compared to 2.60% at June 30, 2009. This increase in non-performing loans was primarily due to an increased level of non-performing residential property loans. Non-performing assets to total assets were 2.74% at September 30, 2009 compared to 2.41% at June 30, 2009.

Non-interest income increased $2.5 million to $3.6 million for the three months ended September 30, 2009 compared to the same period in 2008. This was primarily due to an increase in gain on sale of investments of $2.8 million due to an impairment charge on securities taken in the third quarter of 2008 with no similar impairment charges taken in the current period. Other increases in the quarter included increases in service fees on transaction accounts of $140,000, increases in commission income of $119,000 and increases in cash surrender value of life insurance of $28,000. Most of these other increases are due to the acquisition of MFB Corp which occurred in the third quarter of 2008. These increases were partially offset by a decrease in gains on sales and servicing of loans sold of $529,000 and a decrease in other income of $19,000.

Non-interest expense increased $813,000 to $10.9 million for the three months ended September 30, 2009 compared to $10.1 million for the same period in 2008. Increases in current quarter non-interest expense compared to the same period in 2008 include increases in salaries and employee benefits of $545,000 which was primarily due to commissions paid for mortgage origination. Other increases included increases in occupancy and equipment expense of $171,000, increases in data processing of $29,000, increases in deposit insurance of $222,000, increases in software subscriptions and maintenance of $68,000, increases in intangible amortization of $84,000 and increases in other expenses of $121,000. Most of the increases are due to the acquisition of MFB Corp which occurred in the third quarter of 2008. These increases were partially offset by decreases in professional fees of $71,000, decreases in marketing expense of $36,000 and decreases in supplies of $320,000, which were largely due to costs associated with rebranding and system changes in 2008.

Income tax expense increased $510,000 for the three months ended September 30, 2009 compared to the same period in 2008 due primarily to increased taxable income. The effective tax rate also increased from (461.3)% to 4.0% due to a higher percentage of taxable income when comparing the third quarter of 2009 to the third quarter of 2008, respectively.

Comparison of the Operating Results for the Nine Months Ended September 30, 2009 and 2008

Net income available to common shareholders for the nine months ended September 30, 2009 was $3.0 million, or $.44 for basic and diluted earnings per common share. This compared to net income for the comparable period in 2008 of $2.7 million, or $.58 for basic and diluted earnings per share. Annualized return on average assets was .28% and return on average tangible common equity was 4.39% for the first nine months of 2009 compared to .34% and 4.91% respectively, for the same period last year.

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Net interest income before the provision for loan losses increased $8.0 million from $23.0 million for the nine months ended September 30, 2008 to $30.9 million for the nine months ended September 30, 2009. As mentioned above, the primary reason for the increase was an increase in average earning assets of $307.7 million due to the acquisition of MFB Corp in the third quarter of 2008. In addition, net interest margin increased 7 basis points to 3.22% for the nine months ended September 30, 2009 compared to 3.15% for the comparable period in 2008. The increase in the interest margin was due to rates on interest earning assets repricing less than those on interest earning liabilities.

The provision for loan losses for the first nine months of 2009 was $4.9 million, an increase from $2.6 million for last year’s comparable period. Non-performing loans to total loans at September 30, 2009 were 3.02% compared to 1.63% at September 30, 2008. Non-performing assets to total assets were 2.74% at September 30, 2009 compared to 1.64% at September 30, 2008. The reason for the increase in provision for loan losses is increased loan portfolio, increased net charge-offs, increased non-performing loans and increased delinquencies over the first nine months of 2008. Management continues to diligently review loans with inherent risk at least quarterly to ensure proper classification and adequate reserves.

For the nine month period ended September 30, 2009 non-interest income increased $6.0 to $11.4 million compared to $5.3 million for the same period in 2008. The increase was primarily due to an increase in gain on sale of investments of $2.9 million mainly due to an impairment charge on securities taken in the third quarter of 2008 with no similar impairment charges taken this year. Other changes, which were mainly due to the acquisition of MFB Corp., included increases in service fees of $1.2 million, increases in commission income of $1.0 million and increases in cash surrender value of life insurance of $274,000, which were partially offset by increased losses in limited partnerships of $141,000. Other increases include gains on sales and servicing of loans sold of $885,000, due to the increased volume in loan sales during the first nine months of 2009. These increases were partially offset by decreases in other income of $26,000.

For the nine month period ended September 30, 2009 non-interest expense increased $9.1 million to $32.6 million compared to $23.5 million for the same period in 2008. Increases, largely due to the acquisition of MFB Corp in the third quarter of 2008, include salaries and employee benefits of $4.0 million, intangible amortization of $764,000, occupancy and equipment expenses of $834,000, data processing fees of $234,000, ATM expense of $112,000, professional fees expense of $151,000, marketing expense of $141,000, and software subscriptions and maintenance of $410,000. Deposit insurance increased by $1.5 million due to increased premiums and a special assessment in the second quarter of $630,000. Other expenses increased by $1.2 million primarily due to the acquisition of MFB as well as increases related to expenses associated with real estate owned and other repossessed property of $656,000, due to the increase in foreclosures and repossessions. These increases were partially offset by the decrease in supplies expense of $252,000, which was higher in 2008 due to rebranding, system changes and the MFB acquisition.

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For the nine-month period ended September 30, 2009, income tax expense increased $665,000 compared to the same period in 2008. The increase was due primarily to an increase in taxable income. The effective tax rate also increased from (6.8)% to 10.1% due to increased taxable income and decreased percentage of low income housing tax credits for the first half of 2009 to the first half of 2008, respectively.

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 September 30, 2009, Mutual had liquid assets of $195.9 million and a liquidity ratio of 15.77%. It is anticipated that this level of liquidity will be adequate for the remainder of 2009.

Mutual continues to maintain capital ratios which exceed “well-capitalized” levels as defined pursuant to all regulatory standards as of September 30, 2009. Mutual’s current total risk-based capital ratio is 12.87% and tier 1 risk-based capital ratio is 11.62%.

ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk

Presented below as of September 30, 2009 and 2008 is an analysis of Mutual’s interest rate risk as measured by changes in Mutual’s net portfolio value (“NPV”) assuming an instantaneous and sustained parallel shift in the yield curve, in 100 basis point increments.

September 30, 2009
Net Portfolio Value
Changes										NPV as % of PV of Assets
In Rates	$ Amount			$ Change			% Change			NPV Ratio			Change
+300 bp		172,990			-20,769			-11	%		12.91	%		-71	bp
+200 bp		183,794			-9,965			-5	%		13.43	%		-19	bp
+100 bp		191,453			-2,306			-1	%		13.71	%		9	bp
0 bp		193,759									13.62	%
-100 bp		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)
-200 bp		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)
-300 bp		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)
September 30, 2008
Net Portfolio Value
Changes										NPV as % of PV of Assets
In Rates	$ Amount			$ Change			% Change			NPV Ratio			Change
+300 bp		125,069			-25,736			-17	%		9.68	%		-132	bp
+200 bp		133,559			-17,246			-11	%		10.15	%		-85	bp
+100 bp		143,572			-7,233			-5	%		10.69	%		-31	bp
0 bp		150,805									11.01	%
-100 bp		149,158			-1,647			-1	%		10.70	%		-30	bp
-200 bp		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)
-300 bp		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)		n/m	(1)

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

The analysis at September 30, 2009 indicates that there have been no material changes in market interest rates for Mutual’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, 2008. A reduction in the interest rate risk exposure of Mutual was primarily due to the current structure of the balance sheet aided by the acquisition of MFB Corp. and the continuous sale of originated long term fixed-rate loans.

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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 September 30, 2009 that has materially affected, or is likely to materially affect our internal control over financial reporting.

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.

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PART II.            OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A.  Risk Factors

The following risk factor represents changes and additions to, and should be read in conjunction with “Item 1A. Risk Factors” contained in the Annual Report on Form 10-K for the year ended December 31, 2008.

Unexpected losses in future reporting periods may require us to establish a valuation allowance against our deferred tax assets.

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

Item 2. Registered sales of Equity Securities and use of Proceeds

On August 13, 2008 the Company’s Board of Directors authorized management to repurchase an additional 5% of the Company’s outstanding stock, or approximately 350,000 shares. Information on the shares purchased during the third quarter of 2009 is as follows.

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					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
								330,000	(1)
July 1, 2009 - July 31, 2009		-		-		-		330,000
August 1, 2009 - August 31, 2009		-		-		-		330,000
September 1, 2009 - September 30, 2009		-		-		-		330,000
		-		-		-

(1) Amount represents the number of shares available to be repurchased under the plan as of June 30, 2009

Note: Repurchases of stock must be approved by the Treasury while the Company participates in TARP. No such approval was sought during the period.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Index to Exhibits

Number	Description
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.

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: November 13, 2009	By: /s/ David W. Heeter
	David W. Heeter
	President and Chief Executive Officer
Date: November 13, 2009	By: /s/ Timothy J. McArdle
	Timothy J. McArdle
	Senior Vice President and Treasurer

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