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 September 30, 2012     

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 x    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

As of November 9, 2012, there were 6,994,637 shares of the registrant’s common stock outstanding.

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 Statements of Comprehensive Income	3
	Consolidated Condensed Statement of Stockholders’ Equity	4
	Consolidated Condensed Statements of Cash Flows	5
	Notes to Unaudited Consolidated Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47
Item 4.	Controls and Procedures	48
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Changes in Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Submission of Matters to a Vote of Security Holders	49
Item 5.	Other Information	49
Item 6.	Exhibits	50
Signature   Page		53
Exhibits		54

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY

Consolidated Condensed Balance Sheets

(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	September 30, 2012			December 31, 2011
	(Unaudited)
Assets
Cash	$	7,111		$	7,710
Interest-bearing demand deposits		37,208			47,513
Cash and cash equivalents		44,319			55,223
Interest-bearing deposits		-			1,415
Investment securities available for sale		342,863			330,878
Loans held for sale		4,072			1,441
Loans		962,911			917,275
Allowance for loan losses		(15,536	)		(16,815	)
Net loans		947,375			900,460
Premises and equipment		32,344			32,025
Federal Home Loan Bank of Indianapolis stock, at cost		14,391			14,391
Investment in limited partnerships		2,730			3,113
Deferred income tax benefit		14,896			17,386
Income tax receivable		278			1,344
Cash surrender value of life insurance		48,076			47,023
Prepaid FDIC premium		1,947			2,821
Core deposit and other intangibles		2,634			3,373
Foreclosed real estate		6,184			6,525
Other assets		10,287			9,775
Total assets	$	1,472,396		$	1,427,193
Liabilities
Deposits
Non-interest-bearing	$	133,244		$	122,215
Interest-bearing		1,059,787			1,044,422
Total deposits		1,193,031			1,166,637
Federal Home Loan Bank advances		113,194			101,451
Other borrowings		11,812			12,410
Other liabilities		15,084			14,068
Total liabilities		1,333,121			1,294,566
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par value
Authorized - 5,000,000 shares Issued and outstanding - 28,923 shares; liquidation preference $1,000 per share		1			1
Common stock, $.01 par value
Authorized - 20,000,000 shares Issued and outstanding - 6,993,971 and 6,987,586 shares		70			70
Additional paid-in capital - preferred stock		28,923			28,923
Additional paid-in capital - common stock		71,944			71,796
Retained earnings		34,171			31,270
Accumulated other comprehensive income		4,563			1,203
Unearned employee stock ownership plan (ESOP) shares		(397	)		(636	)
Total stockholders' equity		139,275			132,627
Total liabilities and stockholders' equity	$	1,472,396		$	1,427,193

See notes to consolidated condensed financial statements. 

1

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY

Consolidated Condensed Statements of Income

(Unaudited)

(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Interest Income
Loans receivable, including fees	$	11,532		$	12,992		$	34,760		$	40,091
Investment securities:
Mortgage-backed securities		2,054			1,964			6,161			5,805
Federal Home Loan Bank stock		107			107			323			315
Other investments		201			170			634			460
Deposits with financial institutions		14			17			29			68
Total interest income		13,908			15,250			41,907			46,739
Interest Expense
Passbook savings		13			27			39			98
Certificates of deposit		2,523			3,459			8,032			11,007
Daily Money Market accounts		102			127			302			370
Demand and NOW accounts		226			292			674			886
Federal Home Loan Bank advances		533			741			1,733			2,486
Other interest expense		196			208			593			628
Total interest expense		3,593			4,854			11,373			15,475
Net Interest Income		10,315			10,396			30,534			31,264
Provision for losses on loans		1,475			3,200			4,675			9,100
Net Interest Income After Provision for Loan Losses		8,840			7,196			25,859			22,164
Other Income
Service fee income		1,644			1,862			5,049			5,193
Net realized gain on sale of securities		1,095			1,764			1,575			1,839
Equity in losses of limited partnerships		(124	)		(107	)		(372	)		(256	)
Commissions		859			879			2,914			2,835
Net gains on sales of loans		541			245			1,388			685
Net servicing fees (expenses)		(16	)		(337	)		(126	)		(293	)
Increase in cash surrender value of life insurance		340			346			1,017			1,071
Gain (loss) on sale of other real estate and repossessed assets		30			(22	)		(523	)		(358	)
Other-than-temporary losses on securities
Total other-than-temporary losses		-			-			-			(723	)
Portion of loss recognized in other comprehensive income (before taxes)		-			-			-			530
Net impairment losses recognized in earnings		-			-			-			(193	)
Other income		12			34			93			100
Total other income		4,381			4,664			11,015			10,623
Other Expenses
Salaries and employee benefits		5,273			5,240			15,910			16,103
Net occupancy expenses		641			583			1,744			1,917
Equipment expenses		454			505			1,346			1,487
Data processing fees		361			373			1,178			1,153
Automated teller machine		258			241			743			776
Deposit insurance		312			330			939			1,170
Professional fees		420			433			1,188			1,169
Advertising and promotion		488			453			1,214			1,053
Software subscriptions and maintenance		384			338			1,145			969
Intangible amortization		229			280			745			894
Other real estate and repossessed assets		247			279			691			746
Other expenses		1,066			982			2,816			2,801
Total other expenses		10,133			10,037			29,659			30,238
Income Before Income Tax		3,088			1,823			7,215			2,549
Income tax expense		915			375			1,971			114
Net Income		2,173			1,448			5,244			2,435
Preferred stock dividends and amortization		362			852			1,085			1,753
Net Income Available to Common Shareholders	$	1,811		$	596		$	4,159		$	682
Basic earnings per common share	$	0.26		$	0.09		$	0.60		$	0.10
Diluted earnings per common share	$	0.26		$	0.09		$	0.59		$	0.10
Dividends per common share	$	0.06		$	0.06		$	0.18		$	0.18

See notes to consolidated condensed financial statements.

2

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY

Consolidated Condensed Statements of Comprehensive Income

(Unaudited)

(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net income	$	2,173		$	1,448		$	5,244		$	2,435
Other comprehensive income:
Net unrealized holding gain on securities available-for-sale		2,643			3,802			6,724			11,724
Net unrealized gain (loss) on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income		132			(418	)		(20	)		(136	)
Less: Reclassification adjustment for realized gains included in net income		(1,095	)		(1,764	)		(1,575	)		(1,646	)
Net unrealized gain (loss) on derivative used for cash flow hedges		2			(119	)		16			(162	)
Income taxes related to other comprehensive income		(578	)		(528	)		(1,785	)		(3,448	)
Other comprehensive income		1,104			973			3,360			6,332
Comprehensive income	$	3,277		$	2,421		$	8,604		$	8,767

See notes to consolidated condensed financial statements.

3

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY

Consolidated Condensed Statement of Stockholders' Equity

For the Period Ended September 30, 2012

(Unaudited)

(Table Dollar Amounts in Thousands, Except Share and Per Share Data) 

	Common Stock							Preferred Stock									Accumulated
					Additional							Additional					Other		Unearned
	Shares				paid-in			Shares				paid-in		Retained			Comprehensive		ESOP
	Outstanding		Amount		capital			Outstanding		Amount		capital		Earnings			Income		shares			Total
Balances,  January 1, 2012		6,987,586	$	70	$	71,796			28,923	$	1	$	28,923	$	31,270		$	1,203	$	(636	)	$	132,627
Net income for the period															5,244								5,244
Other comprehensive income, net of tax																		3,360					3,360
ESOP shares earned						(1	)													239			238
Stock options vested						102																	102
Stock options exercised		6,385		-		47																	47
Cash dividends ($.18 per common share)															(1,258	)							(1,258	)
Cash dividends - preferred stock															(1,085	)							(1,085	)
Balances,  September 30, 2012		6,993,971	$	70	$	71,944			28,923	$	1	$	28,923	$	34,171		$	4,563	$	(397	)	$	139,275

See notes to consolidated condensed financial statements.

4

MutualFirst Financial, Inc.

Consolidated Condensed Statements of Cash Flows

(Unaudited)

(Table Dollar Amounts in Thousands, Except Share and Per Share Data) 

	Nine Months Ended
	September 30,
	2012			2011
Operating Activities
Net income	$	5,244		$	2,435
Items not requiring (providing) cash
Provision for loan losses		4,675			9,100
Depreciation and amortization		4,337			4,648
Deferred income tax		705			(336	)
Loans originated for sale		(30,184	)		(16,976	)
Proceeds from sales of loans held for sale		32,203			26,355
Gains on sales of loans held for sale		(1,388	)		(685	)
Gain on sale of securities-available-for sale		(1,575	)		(1,839	)
Loss on sale of premise and equipment		-			44
Loss on other real estate and repossessed assets		523			2,630
Loss on other-than-temporary impairment, securities		-			193
Other equity adjustments		340			255
Change in
Prepaid FDIC premium		874			1,088
Interest receivable and other assets		588			(21,987	)
Interest payable and other liabilities		(46	)		721
Cash value of life insurance		(1,017	)		(1,071	)
Other adjustments		468			(56	)
Net cash provided by operating activities		15,747			4,519
Investing Activities
Net change in interest earning assets		1,415			-
Purchases of securities available-for-sale		(104,448	)		(119,349	)
Proceeds from maturities and paydowns of securities available-for-sale		50,641			29,714
Proceeds from sale of securities-available for sale		47,141			56,436
Redemption of Federal Home Loan Bank Stock		-			2,292
Net change in loans		(63,700	)		18,458
Proceeds from sales of loans transferred to held for sale		3,669			-
Purchases of premises and equipment		(1,702	)		(452	)
Proceeds from real estate owned sales		4,132			3,396
Other investing activities		(22	)		(37	)
Net cash used in investing activities		(62,874	)		(9,542	)
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits		81,587			60,709
Certificates of deposit		(55,193	)		(4,157	)
Proceeds from FHLB advances		382,250			47,600
Repayment of FHLB advances		(370,450	)		(81,375	)
Repayment of other borrowings		(630	)		(595	)
Preferred stock issued		-			28,923
Stock/warrants repurchased		-			(33,282	)
Cash dividends paid		(2,343	)		(2,517	)
Other financing activities		1,002			742
Net cash provided by financing activities		36,223			16,048
Net Change in Cash and Cash Equivalents		(10,904	)		11,025
Cash and Cash Equivalents, Beginning of Period		55,223			26,821
Cash and Cash Equivalents, End of Period	$	44,319		$	37,846
Additional Cash Flows Information
Interest paid	$	11,480		$	15,132
Income tax paid		200			200
Transfers from loans to foreclosed real estate		4,102			7,344
Mortgage servicing rights capitalized		231			397

See Notes to Consolidated Condensed Financial Statements

5

MutualFirst Financial, Inc. and Subsidiaries

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Note 1:  Basis of Presentation

The consolidated condensed financial statements include the accounts of MutualFirst Financial, Inc. (MutualFirst or the “Company”), its wholly owned subsidiary MutualBank, an Indiana commercial bank (“Mutual” or the “Bank”), 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 annual report on Form 10-K for year ended December 31, 2011, filed with the Securities and Exchange Commission on March 16, 2012.

The interim consolidated financial statements at September 30, 2012, 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 periods 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, 2011 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

Note 2: Earnings per share

Earnings per share were computed as follows:

	Three Months Ended September 30,
	2012							2011
				Weighted-							Weighted-
	Net			Average		Per-Share		Net			Average		Per-Share
	Income			Shares		Amount		Income			Shares		Amount
Basic Earnings Per Share
Net income	$	2,173			6,992,831			$	1,448			6,911,597
Dividends and accretion on preferred stock		(362	)						(852	)
Income available to common stockholders		1,811			6,992,831	$	0.26		596			6,911,597	$	0.09
Effect of Dilutive securities
Stock options and RRP grants					82,065							15,836
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	1,811			7,074,896	$	0.26	$	596			6,927,433	$	0.09

6

	Nine Months Ended September 30,
	2012							2011
				Weighted-							Weighted-
	Net			Average		Per-Share		Net			Average		Per-Share
	Income			Shares		Amount		Income			Shares		Amount
Basic Earnings Per Share
Net income	$	5,244			6,937,229			$	2,435			6,902,676
Dividends and accretion on preferred stock		(1,085	)						(1,753	)
Income available to common stockholders		4,159			6,937,229	$	0.60		682			6,902,676	$	0.10
Effect of Dilutive securities
Stock options and RRP grants					94,803							89,753
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	4,159			7,032,032	$	0.59	$	682			6,992,429	$	0.10

Options to purchase 250,681 and 499,637 shares of common stock were outstanding at September 30, 2012 and 2011 for the three and nine months ended, respectively, but were not included in the computation of diluted EPS above, because the average exercise price of the options was greater than the average market price of the common shares.

Note 3:  Impact of Accounting Pronouncements

The FASB has issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs.

The amendments to the FASB Accounting Standards Codification (Codification) in this ASU are to be applied prospectively. For public entities, the amendments were effective during interim and annual periods beginning after December 15, 2011, and did not have a material impact on the Company’s financial statements.

The FASB has issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU amendment allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 is to be applied retrospectively. For public entities, the amendments were effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU No. 2011-05 did not have a material impact on the Company’s financial statements.

7

The FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  This ASU defers the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income for all periods presented. The ASU does not change the other requirements of FASB ASU No. 2011-05, Presentation of Comprehensive Income. Entities are still required to present reclassification adjustments within other comprehensive income either on the face of the statement that reports other comprehensive income or in the notes to the financial statements. The requirement to present comprehensive income in either a single continuous statement or two consecutive condensed statements remains for both annual and interim reporting. The deferral of the requirement for the presentation of reclassification adjustments is intended to be temporary until the FASB reconsiders the operational concerns and needs of financial statement users.

The Company adopted the amendments in this Update at the same time as ASU 2011-05, which became effective beginning in the interim period ended March 31, 2012. As the Company had no reclassifications adjustments within other comprehensive income, ASU No. 2011-12 had no impact on its financial statements.

The FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This ASU amends Topic 210 to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivate instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim period beginning on January 1, 2013, and is not expected to have a significant impact on the Corporation’s financial statements.

Note 4: Investments

The amortized cost and approximate fair values of securities as of September 30, 2012 and December 31, 2011 are as follows.

	September 30, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for Sale Securities
Mortgage-backed securities
Government sponsored agencies	$	179,467	$	7,972	$	-		$	187,439
Collateralized mortgage obligations
Government sponsored agencies		125,153		3,845		(34	)		128,964
Federal agencies		3,000		18		0			3,018
Municipals		3,129		158		(15	)		3,272
Small Business Administration		9		-		-			9
Corporate obligations		24,099		397		(4,335	)		20,161
Total	$	334,857	$	12,390	$	(4,384	)	$	342,863

	December 31, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for Sale Securities
Mortgage-backed securities
Government sponsored agencies	$	198,039	$	4,813	$	(6	)	$	202,846
Collateralized mortgage obligations
Government sponsored agencies		97,098		2,963		-			100,061
Federal agencies		2,000		2		-			2,002
Municipals		3,364		208		(14	)		3,558
Small Business Administration		12		-		-			12
Corporate obligations		27,488		-		(5,089	)		22,399
Total	$	328,001	$	7,986	$	(5,109	)	$	330,878

8

The amortized cost and fair value of available-for-sale securities at September 30, 2012, 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
	Amortized		Fair
Description Securities	Cost		Value
Security obligations due
One to five years	$	17,356	$	17,752
Five to ten years		4,946		4,972
After ten years		7,926		3,727
		30,228		26,451
Mortgage-backed securities		179,467		187,439
Collateralized mortgage obligations		125,153		128,964
Small Business Administration		9		9
Totals	$	334,857	$	342,863

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $2.6 million at September 30, 2012.

Gross gains of $1.6 million and $1.9 million resulting from sales of securities were realized for the nine months ended September 30, 2012 and 2011, respectively. Losses recognized on the sale of securities for the nine months ended September 30, 2012 and 2011 were $0 and $22,000, respectively.  Other-than-temporary impairment losses were recognized on securities for the nine months ended September 30, 2012 and 2011 of $0 and $193,000, respectively.

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, 2012, was $11.3 million, a decrease from $28.5 million at December 31, 2011, which is approximately 3% and 9%, respectively, of the Bank's portfolio.  The Bank has continued to see an improvement since year-end due to increased market values.

Based on evaluation of available evidence, including recent changes in market interest rates, management believes the declines in fair value for these securities, other than those discussed below, 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, 2012 and December 31, 2011:

	September 30, 2012
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Available for Sale
Collateralized mortgage obligations
Government sponsored agencies	$	8,010	$	(34	)	$	-	$	-		$	8,010	$	(34	)
Municipals		876		(15	)		-		-			876		(15	)
Corporate obligations		-		-			2,408		(4,335	)		2,408		(4,335	)
Total temporarily impaired securities	$	8,886	$	(49	)	$	2,408	$	(4,335	)	$	11,294	$	(4,384	)

9

	December 31, 2011
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Available for Sale
Mortgage-backed securities
Government sponsored agencies	$	5,076	$	(6	)	$	-	$	-		$	5,076	$	(6	)
Municipals		971		(14	)		-		-			971		(14	)
Corporate obligations		19,957		(790	)		2,454		(4,299	)		22,411		(5,089	)
Total temporarily impaired securities	$	26,004	$	(810	)	$	2,454	$	(4,299	)	$	28,458	$	(5,109	)

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

The unrealized losses on the Company’s investment in MBSs and CMOs were caused by interest rate changes.  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, 2012.

Corporate Obligations

The Company’s unrealized loss on investments in corporate obligations primarily relates to investments in pooled trust preferred securities. The unrealized losses were primarily caused by (a) a decrease in performance and regulatory capital at the underlying banks resulting from exposure to subprime mortgages and (b) a sector downgrade by several industry analysts. The Company currently expects some of the securities to settle at a price less than the amortized cost basis of the investment (that is, the Company expects to recover less than the entire amortized cost basis of the security). The Company has recognized a loss equal to the credit loss for these securities, establishing a new, and 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 investments 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, 2012.

Mutual evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis. During the quarter ended September 30, 2012, the Bank’s evaluation indicated that there was no other-than-temporary impairment of securities. Impairment on securities is determined after analyzing the estimated cash flows to be received, underlying collateral and determining the amount of additional losses needed in the individual pools to create a shortfall in interest or principal payments. All trust preferred securities were valued using a discounted cash flow analysis as of September 30, 2012.

Other-than-temporary Impairment

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

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

The Company routinely conducts reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred.  Economic models are used to determine whether an other-than-temporary impairment has occurred on these securities.  While all securities are considered, the securities primarily impacted by other-than-temporary impairment testing are pooled trust preferred securities.  For each pooled trust preferred security in the investment portfolio (including but not limited to those whose fair value is less than their amortized cost basis), an extensive, regular review is conducted to determine if an other-than-temporary impairment has occurred.  Various inputs to the economic models are used to determine if an unrealized loss is other-than-temporary.

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

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

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

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

· Discounted cash flow modeling.

MutualFirst uses market-based yield indicators as a baseline for determining appropriate discount rates, and then adjusts the resulting discount rates on the basis of its credit and structural analysis of specific trust preferred securities.  The primary focus is on the returns a fixed income investor would require in order to allocate capital on a risk adjusted basis.  There is currently no active market for pooled trust preferred securities; however, the Company looks principally to market yields for stand-alone trust preferred securities issued by banks, thrifts and insurance companies for which there is an active and liquid market.  The next step is to make a series of adjustments to reflect the differences that exist between these products (both credit and structural) and, most importantly, to reflect idiosyncratic credit performance differences (both actual and projected) between these products and the underlying collateral in the specific trust preferred security.  Importantly, as part of the analysis described above, MutualFirst considers the fact that structured instruments frequently exhibit leverage not present in stand-alone instruments, and make adjustments as necessary to reflect this additional risk.

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

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Pooled Trust Preferred Securities

At September 30, 2012, MutualFirst had an amortized cost in pooled trust preferred securities of $6.7 million, which had an original par value of $8.0 million.  These securities had a fair value of $2.4 million at September 30, 2012.  The following table provides additional information related to the Bank’s investment in trust preferred securities as of September 30, 2012:

Deal	Class		Original Par		Book Value		Fair Value		Unrealized Loss		Recognized Losses 2012		Lowest Rating	Number of Banks/Insurance Companies Currently Performing		Actual Deferrals/Defaults (as % of original collateral)			Total Projected Defaults (as a % of performing collateral)a			Excess Subordination (after taking into account best estimate of future deferrals/defaults)b
Alesco Preferred Funding IX		A2A	$	1,000	$	902	$	375	$	527	$	-	B2		44		16.64	%		15.38	%		44.11	%
Preferred Term Securities XIII		B1		1,000		823		254		569		-	Ca		40		34.94	%		27.67	%		0.84	%
Preferred Term Securities XVIII		C		1,000		917		210		707		-	Ca		48		29.43	%		16.14	%		1.73	%
Preferred Term Securities XXVII		C1		1,000		710		200		510		-	C		34		26.61	%		22.84	%		6.09	%
U.S. Capital Funding I		B1		3,000		2,891		1,148		1,743		-	Caa1		30		15.90	%		14.84	%		1.55	%
U.S. Capital Funding III		B1		1,000		500		221		279		-	Ca		28		27.94	%		16.86	%		0.00	%
Total			$	8,000	$	6,743	$	2,408	$	4,335	$	-

(a)

A 10% recovery is applied to all projected defaults.  A 15% recovery is applied to all projected insurance defaults.  No recovery is applied to current defaults.

(b)

Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. Excess subordinated percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and expected future default percentages.

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 Three Months Ended September 30,
	2012			2011
Credit losses on debt securities held
Beginning of period	$	(1,205	)	$	(1,205	)
Additions related to increases in previously recognized other-than-temporary losses for the three months ended		-			-
As of September 30,	$	(1,205	)	$	(1,205	)

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	Accumulated Credit Losses Nine Months Ended September 30,
	2012			2011
Credit losses on debt securities held
Beginning of year	$	(1,205	)	$	(1,179	)
Additions related to increases in previously recognized other-than-temporary losses for the nine months ended		-			(26	)
As of September 30,	$	(1,205	)	$	(1,205	)

Note 5: Accumulated Other Comprehensive Income

The following table represents the components of accumulated other comprehensive income:

	September 30,			December 31,
	2012			2011
Net unrealized gain on securities available-for-sale	$	11,815		$	6,666
Net unrealized loss on securities available-for-sale for which a portion of other-than-temporary impairment has been recognized in income		(3,808	)		(3,788	)
Net unrealized loss on derivative used for cash flow hedges		(456	)		(472	)
Net unrealized loss relating to defined benefit plan liability		(448	)		(448	)
		7,103			1,958
Tax expense		2,540			755
Net-of-tax amount	$	4,563		$	1,203

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
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 sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

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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.  Level 1 securities include the marketable equity securities.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.  Level 2 securities include mortgage-backed, collateralized mortgage obligations, small business administration, marketable equity, municipal, federal agency and certain corporate obligation securities.  In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain corporate obligation securities.

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

Fair value determinations for Level 3 measurements of securities are the responsibility of the Treasury function of the Company.  The Company contracts with a pricing specialist to generate fair value estimates on a monthly basis.  The Treasury function of the Company challenges the reasonableness of the assumptions used and reviews the methodology to ensure the estimated fair value complies with accounting standards generally accepted in the United States, analyzes the changes in fair value and compares these changes to internally developed expectations and monitors these changes for appropriateness.

The following table presents the fair value measurement of assets measured at fair value on a recurring basis and the level within the ASC 820 fair value hierarchy used for such fair value measurements:

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2012
Mortgage-backed securities
Government sponsored agencies	$	187,439	$	-	$	187,439	$	-
Collateralized mortgage obligations
Government sponsored agencies		128,964		-		128,964		-
Federal agencies		3,018		-		3,018		-
Municipals		3,272		-		3,272		-
Small Business Administration		9		-		9		-
Corporate obligations		20,161		-		17,753		2,408
Available-for-sale securities	$	342,863	$	-	$	340,455	$	2,408
December 31, 2011
Mortgage-backed securities
Government sponsored agencies	$	202,846	$	-	$	202,846	$	-
Collateralized mortgage obligations
Government sponsored agencies		100,061		-		100,061		-
Federal agencies		2,002		-		2,002		-
Municipals		3,558		-		3,558		-
Small Business Administration		12		-		12		-
Corporate obligations		22,399		-		19,945		2,454
Available-for-sale securities	$	330,878	$	-	$	328,424	$	2,454

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The following is a reconciliation of the beginning and ending balances for the three months ended September 30, 2012 and 2011 of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	2012		2011
Beginning balance	$	2,264	$	2,958
Total realized and unrealized gains and losses
Included in net income		-		-
Included in other comprehensive loss		144		(418	)
Purchases, issuances and settlements		-		13
Ending balance	$	2,408	$	2,553
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-	$	-

The following is a reconciliation of the beginning and ending balances for the nine months ended September 30, 2012 and 2011 of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	2012			2011
Beginning balance	$	2,454		$	2,645
Total realized and unrealized gains and losses
Included in net income		-			(193	)
Included in other comprehensive loss		(36	)		57
Purchases, issuances and settlements		(10	)		44
Ending balance	$	2,408		$	2,553
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-		$	(193	)

Items Measured at Fair Value on a Non-Recurring Basis

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

Impaired Loans (Collateral Dependent)

Loans for which it is probable that Mutual will not collect all principal and interest due according to contractual terms are measured for impairment.  Allowable methods for determining the amount of impairment include estimating fair value include using the fair value of the collateral for collateral dependent loans.

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

Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method. 

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Other Real Estate Owned

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

The estimated fair value of other real estate owned is based on current appraisal, less discount to reflect realizable value and estimated cost to sell.  Other real estate owned is classified within Level 3 of the fair value hierarchy.  Appraisals of other real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary by the asset classification committee.  The Risk Management division reviews the appraisals for accuracy and consistency.  Appraisals are selected from the list of approved appraisers maintained by the Board.  The reductions in fair value of other real estate owned were $456,000 and $276,000 for the nine months ended September 30, 2012 and 2011, respectively. The changes were recorded as adjustments to current earnings through other real estate owned related expenses.

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 measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall:

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2012
Impaired loans (collateral dependent)	$	7,235	$	-	$	-	$	7,235
Foreclosed real estate		2,136		-		-		2,136
Mortgage servicing rights		2,109						2,109
December 31, 2011
Impaired loans (collateral dependent)	$	16,511	$	-	$	-	$	16,511
Foreclosed real estate		202		-		-		202
Mortgage-servicing rights		2,626		-		-		2,626

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

	Fair Value at September 30, 2012		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,408	Discounted cash flow	Discount rate Constant prepayment rate Cumulative projected prepayments Probability of default Projected cures given deferral Loss severity		9.0% - 16.0% 2.0%  30.0% 1.5%-2.4% 0%-15.0% 56.7% – 81.4%
Impaired loans (collateral dependent)	$	7,235	Third party valuations	Discount to reflect realizable value		0%-40%
Foreclosed real estate	$	2,136	Third party valuations	Discount to reflect realizable value less estimated selling costs		0%-25%
Mortgage servicing rights	$	2,109	Third party valuations	Prepayment speeds Discount rates Servicing fee		220%-700% 9.0% 0.25%

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

	Carrying				Fair Value Measurements Using
September 30,  2012	Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	44,319	$	44,319	$	44,319	$	-	$	-
Loans held for sale		4,072		4,216		-		4,216		-
Loans		947,375		977,803		-		-		977,803
FHLB stock		14,391		14,391		-		14,391		-
Interest receivable		3,930		3,930		-		3,930		-
Liabilities
Deposits		1,193,031		1,210,969		596,913		-		614,056
FHLB advances		113,194		115,174		-		115,174		-
Other borrowings		11,812		13,006		-		13,006		-
Interest payable		447		447		-		447		-
Advances by borrowers for taxes and insurance		2,675		2,675		-		2,675		-

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	December 31, 2011
	Carrying Amount		Fair Value
Assets
Cash and cash equivalents	$	55,223	$	55,223
Interest-bearing deposits		1,415		1,415
Loans held for sale		1,441		1,459
Loans		900,460		921,212
FHLB stock		14,391		14,391
Interest receivable		4,248		4,248
Liabilities
Deposits	$	1,166,637	$	1,132,031
FHLB advances		101,451		103,980
Other borrowings		12,410		13,083
Interest payable		340		340
Advances by borrowers for taxes and insurance		1,720		1,720

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.

Loans Held For Sale - Fair values are based on current investor purchase commitments.

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

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

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

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

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 fair value of commitments is immaterial.

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Note 7: Loans

Categories of loans at September 30, 2012 and December 31, 2011 include:

	September 30,			December 31,
	2012			2011
Commercial
Real estate	$	195,465		$	197,390
Construction and development		16,718			20,831
Other		61,876			64,628
		274,059			282,849
Residential Mortgage
One- to four- family		491,012			434,976
Consumer loans
Real estate		98,572			96,864
Auto		15,337			15,203
Boat/RVs		79,175			83,557
Other		6,692			6,760
		199,776			202,384
Total loans		964,847			920,209
Undisbursed loans in process		(4,372	)		(5,352	)
Unamortized deferred loan costs, net		2,436			2,418
Allowance for loan losses		(15,536	)		(16,815	)
Net loans	$	947,375		$	900,460

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

Commercial

Commercial real estate

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

Construction and Development

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

19

Commercial other

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

Mortgage and Consumer

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

Nonaccrual Loan and Past Due Loans. 

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.  The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.  Past due status is based on contractual terms of the loan.  In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

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

Non-accrual loans, segregated by class of loans, as of September 30, 2012 and December 31, 2011 are as follows:

	September 30,		December 31,
	2012		2011
Commercial
Real Estate	$	2,688	$	7,592
Construction and development		6,301		9,314
Other		1,412		1,160
Residential Mortgage		9,862		10,080
Consumer
Real estate		1,942		2,081
Auto		39		24
Boat/RV		784		371
Other		104		89
	$	23,112	$	30,711

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An age analysis of Company’s past due loans, segregated by class of loans, as of September 30, 2012 and December 31, 2011 is as follows:

	September 30, 2012
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
Commercial
Real Estate	$	816	$	161	$	2,508	$	3,485	$	191,980	$	195,465	$	-
Construction and development		563		-		5,805		6,368		10,350		16,718		-
Other		1,167		158		780		2,105		59,771		61,876		-
Residential Mortgage		10,566		3,006		9,345		22,917		468,095		491,012		756
Consumer
Real estate		587		353		1,442		2,382		96,190		98,572		-
Auto		63		4		33		100		15,237		15,337		-
Boat/RV		1,409		735		378		2,522		76,653		79,175		-
Other		155		6		68		229		6,463		6,692		1
	$	15,326	$	4,423	$	20,359	$	40,108	$	924,739	$	964,847	$	757

	December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
Commercial
Real Estate	$	1,173	$	1,439	$	6,569	$	9,181	$	188,209	$	197,390	$	-
Construction  and development		845		3,595		4,850		9,290		11,541		20,831		-
Other		791		99		955		1,845		62,783		64,628		-
Residential Mortgage		13,309		3,427		11,207		27,943		407,033		434,976		1,127
Consumer
Real estate		1,395		1,167		2,081		4,643		92,221		96,864		-
Auto		143		28		24		195		15,008		15,203		-
Boat/RV		2,084		825		371		3,280		80,277		83,557		-
Other		227		5		89		321		6,439		6,760		-
	$	19,967	$	10,585	$	26,146	$	56,698	$	863,511	$	920,209	$	1,127

Impaired Loans.  

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

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Loans are individually evaluated for impairment based on internal limits outlined in our lending policies. The current threshold for these evaluations is set at $250,000. Although all troubled debt restructurings are considered impaired loans they are not necessarily individually evaluated for impairment based on the guidelines noted previously.

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

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The following tables present impaired loans for the three and nine month periods ended September 30, 2012 and 2011 and the year ended December 31, 2011.

	September 30, 2012
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans - Quarter		Average Investment in Impaired Loans - YTD		Interest Income Recognized - Quarter		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Commercial
Real estate	$	3,570	$	4,122	$	-	$	4,546	$	5,646	$	37	$	147
Construction and development		7,111		9,101		-		7,669		9,092		11		35
Other		1,076		1,076		-		2,098		3,028		5		28
Residential Mortgage		3,960		5,048		-		3,613		4,124		19		58
Loans with a specific valuation allowance
Commercial
Construction and development		1,364		4,337		375		1,364		1,482		18		55
Other		1,178		1,178		357		1,191		1,206		9		35
Residential Mortgage		529		529		37		530		532		18		35
Total
Commercial
Real estate	$	3,570	$	4,122	$	-	$	4,546	$	5,646	$	37	$	147
Construction and development	$	8,475	$	13,438	$	375	$	9,033	$	10,574	$	29	$	90
Other	$	2,254	$	2,254	$	357	$	3,289	$	4,234	$	14	$	63
Residential Mortgage	$	4,489	$	5,577	$	37	$	4,143	$	4,656	$	37	$	93

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	December 31, 2011
							Average
			Unpaid				Investment in		Interest
	Recorded		Principal		Specific		Impaired		Income
	Balance		Balance		Allowance		Loans		Recognized
Loans without a specific valuation allowance
Commercial
Real estate	$	4,883	$	5,275	$	-	$	4,221	$	137
Construction and development		5,872		11,801		-		9,451		348
Other		4,030		4,167		-		1,480		211
Residential Mortgage		5,378		6,870		-		5,532		142
Loans with a specific valuation allowance
Commercial
Real estate		2,083		2,489		209		1,086		74
Construction and development		7,071		7,281		1,437		3,775		233
Other		1,470		1,524		543		246		60
Residential Mortgage		537		537		36		67		36
Total
Commercial
Real estate	$	6,966	$	7,764	$	209	$	5,307	$	211
Construction and development	$	12,943	$	19,082	$	1,437	$	13,226	$	581
Other	$	5,500	$	5,691	$	543	$	1,726	$	271
Residential Mortgage	$	5,915	$	7,407	$	36	$	5,599	$	178

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	September 30, 2011
	Average Investment in Impaired Loans - Quarter		Average Investment in Impaired Loans - YTD		Interest Income Recognized - Quarter		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Commercial
Real estate	$	3,349	$	4,890	$	4	$	81
Construction and development		9,158		11,776		31		227
Other		1,358		1,972		1		28
Residential Mortgage		4,765		5,866		47		119
Loans with a specific valuation allowance
Commercial
Real estate		1,640		1,648		8		52
Construction and development		3,985		4,122		24		60
Other		125		250		3		7
Residential Mortgage		-		-		-		-
Total
Commercial
Real estate	$	4,989	$	6,538	$	12	$	133
Construction and development	$	13,143	$	15,898	$	55	$	287
Other	$	1,483	$	2,222	$	4	$	35
Residential Mortgage	$	4,765	$	5,866	$	47	$	119

Commercial Loan Grades

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

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

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

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

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

Retail Loan Grades

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

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

Substandard.  Substandard credits are loans that have reason to be considered to have a well defined weakness and placed on non-accrual.  This would include all retail loans over 90 days and troubled debt restructurings which were delinquent at the time of modification.

The following information presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of September 30, 2012 and December 31, 2011.

September 30, 2012
Commercial Credit Exposure Credit Risk Profile
Internal Rating	Real estate		Construction and Development		Other
Pass	$	169,089	$	8,686	$	57,472
Special Mention		15,392		172		300
Substandard		10,984		7,860		3,234
Doubtful		-		-		870
Total	$	195,465	$	16,718	$	61,876

Retail Credit Exposure Credit Risk Profile
	Mortgage		Consumer
	Residential		Real Estate		Auto		Boat/RV		Other
Pass	$	474,440	$	95,994	$	15,287	$	78,012	$	6,595
Special Mention		2,031		-		-		-		-
Substandard		14,541		2,578		50		1,163		97
Total	$	491,012	$	98,572	$	15,337	$	79,175	$	6,692

December 31, 2011
Commercial Credit Exposure Credit Risk Profile
			Construction
			and
Internal Rating	Real estate		Development		Other
Pass	$	167,991	$	8,093	$	56,691
Special Mention		11,940		538		880
Substandard		16,488		12,105		6,260
Doubtful		971		95		797
Total	$	197,390	$	20,831	$	64,628

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Retail Credit Exposure Credit Risk Profile
	Mortgage		Consumer
	Residential		Real Estate		Auto		Boat/RV		Other
Pass	$	417,772	$	94,066	$	15,135	$	82,639	$	6,680
Special Mention		2,473		-		-		-		-
Substandard		14,731		2,798		68		918		80
Total	$	434,976	$	96,864	$	15,203	$	83,557	$	6,760

Allowance for Loan Losses.

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

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

The allowance for loan losses is based on estimates of losses inherent in the loan portfolio.  Actual losses can vary significantly from the estimated amounts.  Our methodology as described permits adjustments to any loss factor used in the computation of the general allowance in the event that, in management’s judgment, significant factors which affect the collectability of the portfolio as of the evaluation date are not reflected in the loss factors.  By assessing the probable incurred losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available.  Due to the loss of numerous manufacturing jobs in the communities we serve during recent years and the increase in higher risk loans, like consumer and commercial loans, as a percentage of total loans, management has concluded that our allowance for loan losses should be greater than historical loss experience and specifically identified losses would otherwise indicate.

The following table details activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2012 and 2011 and year ended December 31, 2011.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other segments.

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	Three Months Ended September 30, 2012
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	10,004	$	3,392	$	2,607	$	16,003
Provision charged to expense		985		480		10		1,475
Losses charged off		1,484		505		268		2,257
Recoveries		16		196		103		315
Balance, end of period	$	9,521	$	3,563	$	2,452	$	15,536

	Nine Months Ended September 30, 2012
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	10,602	$	3,444	$	2,769	$	16,815
Provision charged to expense		2,410		1,571		694		4,675
Losses charged off		4,034		1,652		1,354		7,040
Recoveries		543		200		343		1,086
Balance, end of period	$	9,521	$	3,563	$	2,452	$	15,536
Ending balance:
Individually evaluated for impairment	$	732	$	37	$	-	$	769
Collectively evaluated for impairment	$	8,789	$	3,526	$	2,452	$	14,767
Loans:
Ending balance
Individually evaluated for impairment	$	14,299	$	4,489	$	-	$	18,788
Collectively evaluated for impairment	$	259,760	$	486,523	$	199,776	$	946,059

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	Year Ended December 31, 2011
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	10,124	$	2,212	$	4,036	$	16,372
Provision charged to expense		8,592		4,390		118		13,100
Losses charged off		8,260		3,432		2,126		13,818
Recoveries		146		274		741		1,161
Balance, end of period	$	10,602	$	3,444	$	2,769	$	16,815
Ending balance:
Individually evaluated for impairment	$	2,189	$	36	$	-	$	2,225
Collectively evaluated for impairment	$	8,413	$	3,408	$	2,769	$	14,590
Loans:
Ending balance
Individually evaluated for impairment	$	25,409	$	5,915	$	-	$	31,324
Collectively evaluated for impairment	$	257,440	$	429,061	$	202,384	$	888,885

	Three Months Ended September 30, 2011
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	9,790	$	2,135	$	4,032	$	15,957
Provision charged to expense		2,915		100		185		3,200
Losses charged off		2,017		464		556		3,037
Recoveries		64		63		234		361
Balance, end of period	$	10,752	$	1,834	$	3,895	$	16,481

	Nine Months Ended September 30, 2011
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	10,124	$	2,212	$	4,036	$	16,372
Provision charged to expense		6,145		2,100		855		9,100
Losses charged off		5,582		2,644		1,647		9,873
Recoveries		65		166		651		882
Balance, end of period	$	10,752	$	1,834	$	3,895	$	16,481

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

For all loan portfolio segments except 1-4 family residential properties and consumer, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

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

Information on non-performing assets, excluding performing restructured loans, is provided below:

	September 30,
	2012		2011
Non-performing assets
Non-accrual loans	$	23,112	$	25,937
Accruing loans 90 days + past due		757		1,103
Total non-performing loans		23,869		27,040
Foreclosed real estate		6,184		5,686
Other repossessed assets		573		1,142
Total non-performing assets	$	30,626	$	33,868

Troubled Debt Restructurings

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

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

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

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The following tables provide detail regarding troubled debts restructured in the three and nine month periods ended September 30, 2012 and 2011.

Three Months Ended September 30, 2012
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		1	$	439	$	439
Construction and development		1		172		172
Other		2		46		46
Residential Mortgage		10		719		734
Consumer
Real estate		14		439		438
Auto		2		9		8
Boat/RV		4		96		95
Other		2		36		36

Three Months Ended September 30, 2011
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		1	$	113	$	70
Residential Mortgage		6		463		492
Consumer
Real estate		10		231		231
Auto		1		10		10
Boat/RV		4		134		133

Nine Months Ended September 30, 2012
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		4	$	1,359	$	1,520
Construction and development		1		172		172
Other		5		262		324
Residential Mortgage		28		2,455		2,596
Consumer
Real estate		24		830		830
Auto		3		16		15
Boat/RV		7		154		153
Other		4		53		52

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Nine Months Ended September 30, 2011
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		1	$	113	$	70
Construction and development		2		3,728		3,728
Other		1		103		103
Residential Mortgage		22		2,529		2,598
Consumer
Real estate		22		555		551
Auto		1		10		10
Boat/RV		12		364		357
Other		1		14		1

The impact to the allowance for loan losses due to these modifications was insignificant.

Newly restructured loans by types are as follows:

Three Months Ended September 30, 2012
	Interest Only		Term		Combination		Total Modification
Commercial
Real Estate	$	-	$	-	$	439	$	439
Construction and development		-		-		172		172
Other		-		46		-		46
Residential Mortgage		-		36		698		734
Consumer
Real estate		-		22		416		438
Auto		-		4		4		8
Boat/RV		-		95		-		95
Other		-		-		36		36

Nine Months Ended September 30, 2012
	Interest Only		Term		Combination		Total Modification
Commercial
Real Estate	$	-	$	403	$	1,117	$	1,520
Construction and development		-		-		172		172
Other		-		143		181		324
Residential Mortgage		320		169		2,107		2,596
Consumer
Real estate		-		55		775		830
Auto		-		11		4		15
Boat/RV		-		153		-		153
Other		-		8		44		52

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The following tables provide detail regarding troubled debts restructured in the last twelve months that have defaulted in the quarter ended September 30, 2012.

Three and Nine Months Ended September 30, 2012
			Post- Modification
			Outstanding
	No. of Loans		Recorded Balance
Commercial
Real Estate		1	$	109
Other		1		518
Residential Mortgage		1		31
Consumer
Other		1		14

We had no defaults of any loans modified as troubled debt restructurings made for the three and nine months ended September 30, 2011. Default is defined as any loan that becomes more than 90 days past due.

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

Overview and Significant Events in the Three and Nine Months Ended September 30, 2012

The following should be read in conjunction with the Management’s Discussion and Analysis in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the SEC on March 16, 2012.

The Company is a Maryland corporation and a bank holding company headquartered in Muncie, Indiana, with operations in Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash counties in Indiana. It owns MutualBank, an Indiana commercial bank with 32 bank branches in Indiana, trust offices in Carmel and Crawfordsville, Indiana and a loan origination office in New Buffalo, Michigan. The Company is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System (“FRB”), and the Bank is subject to regulation, supervision and examination by the Indiana Department of Financial Institutions (“IDFI”)and the Federal Deposit Insurance Corporation (“FDIC”).

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

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

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Third Quarter Highlights. At September 30, 2012, we had $1.5 billion in assets, $962.9 million in loans, $1.2 billion in deposits and $139.3 million in stockholders’ equity. The Bank’s total risk-based capital ratio at September 30, 2012 was 15.01%, exceeding the 10.00% requirement for a well-capitalized institution. The ratio of tangible common equity was 7.33% as of September 30, 2012, an increase from 7.05% at December 31, 2011. For the quarter ended September 30, 2012, income available to common shareholders totaled $1.8 million, or $.26 per basic and diluted share, compared with net income of $596,000 available to common shareholders, or $.09 per basic and diluted share for the quarter ended September 30, 2011.

Key aspects of our operations in the third quarter of 2012, include the following:

· Gross loans increased $8.5 million.

· Deposits increased $21.5 million.

· Tangible common equity increased to 7.33% in the third quarter of 2012 and tangible book value increased to $15.40.

· Non-performing assets declined $2.2 million, or 6.7% in the third quarter of 2012 and declined $8.6 million, or 21.9% compared to December 31, 2011. Classified assets declined $5.8 million, or 9.5% in the third quarter of 2012 to $54.9 million compared to $60.6 million at December 31, 2011.

· Net charge offs on an annualized basis were .81% in the third quarter of 2012 compared to 1.11% in the same period of 2011. Net charge offs on a linked quarter basis decreased from 1.04%.

· Net interest margin was 3.05% for the third quarter of 2012 compared to 3.19% in the same period of 2011. On a linked quarter basis, net interest margin declined from 3.10%.

· Non-interest income for the quarter ended September 30, 2012 decreased $283,000 compared to the same period in 2011. On a linked quarter basis, non-interest income increased $676,000.

· Non-interest expense for the third quarter of 2012 increased $97,000 over the same period in 2011. Non-interest expense increased $200,000 over the linked quarter.

The Management’s Discussion and Analysis in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, contains a summary of our management strategy. The financial highlights of our strategy during the quarter include: increasing core deposits by 0.4% during the quarter to 49.6% of total deposits; decreasing non-performing assets to total assets from 2.23% at June 30, 2012 to 2.08% at the end of the quarter; and maintaining increased capital ratios from year-end levels.

Critical Accounting Policies

Note 1 to the Notes to the Consolidated Financial Statements in Item 8 of the Form 10-K for the year ended December 31, 2011 contains a summary of MutualFirst ’s significant accounting policies. Certain of these policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.  Management believes that its critical accounting policies include determining the allowance for loan losses, the valuation of foreclosed assets, mortgage servicing rights 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.

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.

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Management recently reviewed the Bank’s processes for foreclosed properties and deemed they are in compliance with regulations and state laws.

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

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.

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 securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, to determine 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.

If management determines that an investment experienced an OTTI, management must then determine the amount of the OTTI to be recognized in earnings.  For investments in debt securities, 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 stockholders’ equity) and not recognized in income until the security is ultimately sold.

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

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

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

Financial Condition

General. Total assets at September 30, 2012 were $1.5 billion and increased $45.2 million since December 31, 2011, primarily as a result of a 4.9% increase in gross loans, excluding loans held for sale, and a 3.6% increase in investment securities, which were offset in part by a decrease in cash and cash equivalents. Average interest-earning assets increased $29.3 million or 2.2% to $1.34 billion at September 30, 2012 from $1.31 billion at December 31, 2011, reflecting an increase in average investments. Average interest-bearing liabilities increased by $13.0 million or 1.1% to $1.17 billion at September 30, 2012, from $1.16 billion at December 31, 2011, reflecting an increase in average borrowings. Stockholders’ equity increased by $6.6 million or 5.0% during the nine months ended September 30, 2012.

Loans. Our gross loan portfolio, excluding loans held for sale, increased $44.6 million or 4.9% to $964.8 million at September 30, 2012 from $920.2 million at December 31, 2011.

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The following table reflects the changes in the gross amount of loans, excluding loans held for sale, by type during the period:

	At
	September 30, 2012		December 31, 2011		Amount Change			Percent Change
Commercial Loans:
Real Estate	$	195,465	$	197,390	$	(1,925	)		(0.98	)%
Construction and Development		16,718		20,831		(4,113	)		(19.74	)
Other		61,876		64,628		(2,752	)		(4.26	)
Total Commercial		274,059		282,849		(8,790	)		(3.11	)
Residential Mortgages		491,012		434,976		56,036			12.88
Consumer Loans:
Real estate		98,572		96,864		1,708			1.76
Auto		15,337		15,203		134			0.88
Boat/RV		79,175		83,557		(4,382	)		(5.24	)
Other		6,692		6,760		(68	)		(1.01	)
Total Consumer		199,776		202,384		(2,608	)		(1.29	)
Total Loans	$	964,847	$	920,209	$	44,638			4.85	%

Although the Bank has an overall strategy to increase commercial and consumer loans, the strategy has been hindered by depressed economic conditions in Indiana as a result of the recent recession. Due to increased unemployment and decreased real estate values, loan demand, especially for business loans, has remained sluggish. We are seeking opportunities to refinance sound commercial borrowers from other financial institutions. The decrease in the commercial and consumer portfolios was offset by an increase in residential mortgage lending of $56.0 million during the period. The lower rates have allowed consumers to refinance their mortgage loans and the Bank continues to see this business as strong with less credit risk. Currently the bank is also selling 30-year fixed-rate mortgage loans which helps reduce risk.

Delinquencies and Non-performing Assets. As of September 30, 2012, our total loans delinquent 30-to-89 days were $19.7 million or 2.0% of total loans compared to $30.5 million or 2.9% at December 31, 2011.

At September 30, 2012, our non-performing assets totaled $30.6 million or 2.08% of total assets, compared to $39.2 million or 2.75% of total assets at December 31, 2011. This $8.6 million, or 21.9% decrease was primarily the result of a decrease of non-performing commercial real estate loans. The table below sets forth the amounts and categories of non-performing assets in our loan portfolio at the dates indicated.

	At
	September 30,  2012		December 31, 2011		Amount Change			Percent Change
Non-accruing loans	$	23,112	$	30,711	$	(7,599	)		(24.74	)%
Accruing loans delinquent 90 days or more		757		1,127		(370	)		(32.83	)
Foreclosed assets		6,757		7,392		(635	)		(8.59	)
Total	$	30,626	$	39,230	$	(8,604	)		(21.93	)%

Our non-performing assets have decreased dramatically due to continued improvement in the economic environment and being able to work through problem credits. As of September 30, 2012, we have seen our third consecutive quarter of decreases as non-performing assets were down $2.2 million and $8.6 million at the three and nine months ended September 30, 2012, respectively. The Bank is diligently monitoring and writing down loans that appear to have irreversible weakness. In addition to the decrease in non-performing assets, the Company has seen significant improvement during the year in total classified assets. Total classified assets decreased 20.9% from $69.4 million at December 31, 2011 to $54.9 million at September 30, 2012. The Bank works to ensure possible problem loans have been identified and steps have been taken to reduce loss by restructuring loans to improve cash flow or by increasing collateral, when necessary.

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At September 30, 2012, foreclosed commercial real estate totaled $1.9 million and consisted of 13 commercial buildings in our existing lending footprint. In addition, 44 residential properties with a book value of $4.3 million remained as foreclosed assets at September 30, 2012. Of the total foreclosed assets, one property held in real estate owned totaled $2.4 million. At September 30, 2012, the Bank had $573,000 in other repossessed assets. Non-accruing commercial real estate loans, including construction and development loans, decreased $1.9 million in the quarter from $10.9 million at June 30, 2011, to $9.0 million at September 30, 2012. During the quarter, non-accruing one- to four-family loans remained fairly consistent, only increasing by $130,000. Management continues to monitor these loans aggressively and it is management’s opinion that the non-accruing loans are sufficiently reserved as of September 30, 2012.  

Allowance For Loan Loss. Allowance for loan losses decreased $945,000 to $15.5 million at September 30, 2012 when compared to September 30, 2011 as reflected below.

	At and For the Nine Months Ended September 30,
	2012			2011
Balance at beginning of period	$	16,815		$	16,372
Charge-offs		7,040			9,873
Recoveries		1,086			882
Net charge-offs		5,954			8,991
Provisions charged to operations		4,675			9,100
Balance at end of period	$	15,536		$	16,481
Ratio of net charge-offs during the period to average loans outstanding during the period		0.81	%		1.24	%
Allowance as a percentage of non-performing loans		65.09	%		60.95	%
Allowance as a percentage of total loans (end of period)		1.61	%		1.72	%

Specific loan loss allocations related to loans that have been individually evaluated for impairment decreased and general loan loss reserves have remained approximately the same. Charge-offs were taken against loans that had previous specific loan loss reserves. Net charge offs for the first nine months of 2012 were $6.0 million, or 0.84% of average loans on an annualized basis, compared to $9.0 million, or 1.24% of average loans for the first nine months of 2011. The decrease was due to what management believes is a stabilization of the loan portfolio. As of September 30, 2012, the allowance for loan losses as a percentage of loans receivable and non-performing loans was 1.61% and 65.09%, respectively, compared to 1.83% and 52.81% respectively, at December 31, 2011. Allowance for loan losses as a percentage of loans receivable decreased due to an increase in the net loan portfolio of $44.6 million since year-end. Allowance for loan losses as a percentage of non-performing loans increased due to the decrease in non-performing loans in the first nine months of 2012.

Over 24.8% of our non-accrual loans are comprised of four commercial loans totaling $5.7 million. All of these loans are commercial real estate loans, including construction and development loans.

Deposits. Total deposits increased $26.4 million to $1.19 billion at September 30, 2012, primarily due to increased activity in new and existing core deposit relationships as reflected in the table below with corresponding weighted average rates partially offset by a decrease in certificates of deposit. The increase in non-interest bearing deposits reflects an increase in business checking. These changes are consistent with the Bank’s strategy to grow and strengthen core deposit relationships.

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	At
	September 30, 2012					December 31, 2011
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Type of Account
Non-interest Checking	$	133,244		0.00	%	$	122,215		0.00	%
Interest-bearing NOW		252,791		0.35			218,916		0.49
Savings		106,859		0.05			98,122		0.05
Money Market		98,308		0.44			85,069		0.65
Certificates of Deposit		601,829		1.70			642,315		1.91
Total	$	1,193,031		0.97	%	$	1,166,637		1.22	%

Borrowings. Total borrowings increased $11.1 million, or 9.8%, to $125.0 million at September 30, 2012 primarily due to an $11.7 million increase in FHLB advances to $113.2 million at the end of the period. The increase in advances was necessary to fund current loan demand. Other borrowings, consisting of a bank loan and a subordinated debenture, decreased $598,000 to $11.8 million at September 30, 2012 due to regular loan payments.

In 2009, the Company borrowed $10.0 million from First Tennessee Bank, N.A. to refinance existing long-term debt. The loan bears a 5.9% interest rate, has a term expiring in December 2014 and is secured by Bank stock. The balance of that loan was $8.0 million at September 30, 2012.

The Company acquired $5.0 million of issuer trust preferred securities in a 2008 acquisition of another financial institution. The net balance of the note as of September 30, 2012 was $4.0 million due to the purchase accounting adjustment from the acquisition. The securities were issued on July 29, 2005. The securities bore a fixed rate of interest of 6.22% through July 2010, and, thereafter, the rate was to reset quarterly at the prevailing three-month LIBOR rate plus 170 basis points. In December 2009, the Company entered into a cash flow hedge with FTN Financial to fix the floating portion of the issued trust preferred security at 5.15% for the next five years starting on September 15, 2010. The Company has had the right to redeem the trust preferred securities, in whole or in part, without penalty, since establishing the cash flow hedge. These securities mature on September 15, 2035.

Stockholders’ Equity. Stockholders’ equity was $139.3 million at September 30, 2012, an increase of $6.6 million from December 31, 2011. The increase was due primarily to net income of $5.2 million and unrealized gains on securities of $3.3 million. The increase was offset by dividend payments of $2.3 million to common and preferred shareholders. The Company’s tangible book value per share as of September 30, 2012 increased to $15.40 compared to $14.38 as of December 31, 2011 and the tangible common equity ratio was 7.33% as of September 30, 2012 compared to 7.05% as of December 31, 2011.

Comparison of Results of Operations for the Three Months Ended September 30, 2012 and 2011

General. Net income available to common shareholders for the three months ended September 30, 2012 was $1.8 million or $0.26 basic and diluted earnings per common share compared to net income of $596,000, or $0.09 basic and diluted earnings per common share for the three months ended September 30, 2011. The primary reason for this increase was a reduction in the provision for loan loss of $1.7 million compared to the same period last year. Annualized return on assets was .59% and return on average tangible common equity was 6.83% for the third quarter of 2012 compared to .41% and 2.37% respectively, for the same period last year.

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Interest Income. Total interest income decreased $1.3 million, or 8.8%, to $13.9 million during the three months ended September 30, 2012 from $15.2 million during the three months ended September 30, 2011. The decrease was a result of a decline in net interest yield on interest-earning assets of 56 basis points, partially offset by an increase in average earning assets of $46.8 million comparing the third quarter of 2012 with the same period in 2011. The decline in yield was primarily due to the decline in national and local prevailing interest rates and the mix of interest-earning assets. Interest income on loans in the third quarter of 2012 was $11.5 million compared to $13.0 million for same period in 2011, reflecting a slight decrease in the average balance of the loan portfolio at September 30, 2012 and a 60 basis point decrease in the weighted average yield on loans for the three months ended September 30, 2012 to 4.79%. Interest income on investment securities for the third quarter 2012 was $2.4 million compared to $2.2 million for the same period in 2011, reflecting a $51.3 million increase in our average investment securities portfolio to $368.9 million as of September 30, 2012.

Interest Expense. Interest expense decreased $1.3 million, or 26.0%, to $3.6 million during the three months ended September 30, 2012 compared to $4.9 million during the three months ended September 30, 2011. The primary reason for this decrease was a decline of 47 basis points in the average cost of interest-bearing liabilities from 1.69% in the 2011 period to 1.22% in the 2012 period, which was primarily due to continued re-pricing of deposit accounts and reduction of higher rate FHLB advances. Interest expense on deposits decreased $1.0 million, due to a 40 basis point decline in average rates. Interest expense on borrowings decreased $220,000 as a result of a 139 basis point decline in average rates, partially offset by a $31.4 million increase in average borrowings in the third quarter 2012.

Net Interest Income. Net interest income before the provision for loan losses decreased $80,000 for the quarter ended September 30, 2012 compared to the same period in 2011. The decrease was a result of a decline in net interest margin by 14 basis points, partially offset by an increase in average earning assets of $46.8 million comparing the third quarter of 2012 with the same period in 2011. For more information on our asset/liability management, especially as it relates to interest rate risk, see Item 7A - Quantitative and Qualitative Disclosures About Market Risk” on Form 10-K for the period ended December 31, 2011.

Provision for Loan Losses. The provision for loan losses for the third quarter of 2012 decreased to $1.5 million compared to $3.2 million during last year’s comparable period. The decrease was due to management’s ongoing evaluation of the adequacy of the allowance for loan losses, which was partially attributable to net charge offs decreasing to $1.9 million, or .81% of loans on an annualized basis in the third quarter of 2012 compared to net charge offs of $2.7 million, or 1.11% of loans on an annualized basis in the third quarter of 2011. Net charge offs exceeded the provision primarily due to charge offs related to previously identified loans which had established specific allocations. Non-performing loans to total loans at September 30, 2012 were 2.48% compared to 2.82% at September 30, 2011. Non-performing assets to total assets were 2.08% at September 30, 2012 compared to 2.43% at September 30, 2011.

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Other Income. Other (non-interest) income decreased by $283,000 to $4.4 million in the third quarter of 2012 compared to $4.7 million in the same period in 2011.

	Three Months Ended						Amount			Percent
Non-Interest Income	9/30/2012			9/30/2011			Change			Change
Service fee income	$	1,644		$	1,862		$	(218	)		-11.7	%
Net realized gain on sale of securities		1,095			1,764			(669	)		-37.9	%
Equity in losses of limited partnerships		(124	)		(107	)		(17	)		-15.9	%
Commissions		859			879			(20	)		-2.3	%
Net gains on sales of loans		541			245			296			120.8	%
Net servicing fees (costs)		(16	)		(337	)		321			95.3	%
Increase in cash surrender value of life insurance		340			346			(6	)		-1.7	%
Loss on sale of other real estate and repossessed assets		30			(22	)		52			236.4	%
Other income		12			34			(22	)		-64.7	%
Total Non-Interest Income	$	4,381		$	4,664		$	(283	)		-6.1	%

The decrease in non-interest income is primarily due to the decrease in gain on sale of securities. Service fee income on deposit accounts also decreased as fees collected on overdrafts have declined as overdraft transactions have decreased. This was partially offset by the increase in gain on sale of loans and servicing of loans due to the increased activity in the mortgage banking market. On a linked quarter basis, non-interest income increased $676,000 primarily due to gain on sale of investments.

Other Expense. Other (non-interest) expense increased by $96,000 to $10.1 million in the third quarter of 2012 compared to $10.0 million in the same period in 2011.

	Three Months Ended				Amount			Percent
Non-Interest Expense	9/30/2012		9/30/2011		Change			Change
Salaries and employee benefits	$	5,273	$	5,240	$	33			0.6	%
Net occupancy expenses		641		583		58			10.0	%
Equipment expenses		454		505		(51	)		-10.1	%
Data processing fees		361		373		(12	)		-3.2	%
Automated teller machine		258		241		17			7.1	%
Deposit insurance		312		330		(18	)		-5.5	%
Professional fees		420		433		(13	)		-3.0	%
Advertising and promotion		488		453		35			7.7	%
Software subscriptions and publications		384		338		46			13.6	%
Intangible amortization		229		280		(51	)		-18.2	%
Other real estate and repossessed assets		247		279		(32	)		-11.5	%
Other expenses		1,066		982		84			8.5	%
Total Non-Interest Expense	$	10,133	$	10,037	$	96			1.0	%

The increase in non-interest expense was primarily due to an approximately $200,000 expense related to property taxes to maintain secure collateral on a large problem loan, which was partially offset by the decrease in intangible amortization and equipment expenses. On a linked quarter, non-interest expense increased $200,000 for the above stated reason.

42

Income Tax Expense. Income tax expense for the quarter ended September 30, 2012 increased $540,000 compared to the same period in 2011 because of increased earnings. The Company’s effective tax rate increased to 29.6% in the 2012 period from 20.6% in the 2011 period because of increased net income and decreased low income housing credits as a percentage of net income.

Comparison of Results of Operations for the Nine Months Ended September 30, 2012 and 2011

General. Net income available to common stockholders for the nine months ended September 30, 2012 was $4.2 million or $0.60 basic and $0.59 diluted earnings per common share compared to net income of $682,000, or $0.10 basic and diluted earnings per common share for the nine months ended September 30, 2011. The primary reason for this increase was a decrease in provision for loan loss due to stabilization of the loan portfolio. Annualized return on assets was .48% and return on average tangible common equity was 5.31% for the nine months ended in 2012 compared to .23% and .93% respectively, for the same period last year.

Interest Income. Total interest income decreased $4.8 million, or 10.3%, to $41.9 million during the nine months ended September 30, 2012 from $46.7 million during the same period ended September 30, 2011, reflecting the decrease in our average yield on interest-earning assets by 57 basis points to 4.18% for the period ended September 30, 2012 compared to 4.75% for the period ended September 30, 2011 as national and local prevailing interest rates continued to decline and the mix of interest-earning assets shifted towards lower yielding investment securities. Interest income on loans in the first nine months of 2012 was $34.8 million compared to $40.1 million for same period in 2011, reflecting a $19.5 million increase in the average loan portfolio to $950.0 million at September 30, 2012 and a 63 basis point decrease in the weighted average yield on loans for the nine months ended September 30, 2012 to 4.88%. Interest income on investment securities for the first nine months of 2012 was $7.1 million compared to $6.6 million for the same period in 2011, reflecting a $60.0 million increase in our average investment securities portfolio to $365.0 million for the period ended September 30, 2012.

Interest Expense. Interest expense decreased $4.1 million, or 26.5%, to $11.4 million during the nine months ended September 30, 2012 compared to $15.5 million during the nine months ended September 30, 2011. The primary reason for this decrease was a decline of 48 basis points on interest-bearing liabilities from 1.77% in 2011 to 1.29% in 2012, which was primarily due to continued re-pricing of deposit accounts and reduction of higher rate FHLB advances. Interest expense on deposits decreased $3.3 million, due to a 42 basis point decline in average rates partially offset by an $819,000 increase in average interest-bearing deposits. Interest expense on borrowings decreased $788,000 as a result of a 107 basis point decline in average rates which was partially offset by an $8.7 million increase in average borrowings in the first nine months of 2012.

Net Interest Income. Net interest income before the provision for loan losses decreased $730,000 for the nine months ended of 2012 compared to the same period in 2011. The decrease was a result of the decline in the net interest margin from 3.18% in the first nine months of 2011 to 3.05% in the first nine months of 2012, which was partially offset by an increase in average earning assets of $23.8 million. For more information on our asset/liability management, especially as it relates to interest rate risk, see Item 7A - Quantitative and Qualitative Disclosures About Market Risk” on Form 10-K for the period ended December 31, 2011

Provision for Loan Losses. The provision for loan losses for the first nine months of 2012 decreased to $4.7 million compared to $9.1 million during last year’s comparable period. The decrease was due to management’s ongoing evaluation of the adequacy of the allowance for loans losses, which was partially attributable to a reduction in net charge offs to $6.0 million in the first nine months of 2012 compared to net charge offs of $9.0 million in the same period in 2011. Non-performing loans to total loans at September 30, 2012 were 2.48% compared to 3.47% at December 31, 2011. Non-performing loans decreased $8.0 million, or 25% as of September 30, 2012 compared to December 31, 2011.

43

Other Income. Other (non-interest) income increased by $392,000 to $11.0 million during nine months of 2012 compared to $10.6 million in the same period in 2011.

	Nine Months Ended						Amount			Percent
Non-Interest Income	9/30/2012			9/30/2011			Change			Change
Service fee income	$	5,049		$	5,193		$	(144	)		-2.8	%
Net realized gain on sale of securities		1,575			1,839			(264	)		-14.4	%
Equity in losses of limited partnerships		(372	)		(256	)		(116	)		-45.3	%
Commissions		2,914			2,835			79			2.8	%
Net gains on sales of loans		1,388			685			703			102.6	%
Net servicing fees (costs)		(126	)		(293	)		126			-43.0	%
Increase in cash surrender value of life insurance		1,017			1,071			(54	)		-5.0	%
Loss on sale of other real estate and repossessed assets		(523	)		(358	)		(165	)		-46.1	%
Net other-than-temporary losses on securities		-			(193	)		193			100.0	%
Other income		93			100			(7	)		-7.0	%
Total Non-Interest Income	$	11,015		$	10,623		$	392			3.7	%

The increase in non-interest income was primarily due to additional gains on sales of loans and decreased servicing costs of loans as the increased production in the mortgage banking area in combination with the lower market rates allowed for mortgage loans to be sold at gains. Partially offsetting these increases was a decrease in gain on sale of securities due to decreased investment sales in 2012 as well as the decrease in service fee income on deposits due to the reduction in overdraft fee income.

Other Expense. Other (non-interest) expense decreased by $579,000 to $29.7 million in the first nine months of 2012 compared to $30.2 million in the same period in 2011.

	Nine Months Ended				Amount			Percent
Non-Interest Expense	9/30/2012		9/30/2011		Change			Change
Salaries and employee benefits	$	15,910	$	16,103	$	(193	)		-1.2	%
Net occupancy expenses		1,744		1,917		(173	)		-9.0	%
Equipment expenses		1,346		1,487		(141	)		-9.5	%
Data processing fees		1,178		1,153		25			2.2	%
Automated teller machine		743		776		(33	)		-4.3	%
Deposit insurance		939		1,170		(231	)		-19.7	%
Professional fees		1,188		1,169		19			1.6	%
Advertising and promotion		1,214		1,053		161			15.3	%
Software subscriptions and publications		1,145		969		176			18.2	%
Intangible amortization		745		894		(149	)		-16.7	%
Other real estate and repossessed assets		691		746		(55	)		-7.4	%
Other expenses		2,816		2,801		15			0.5	%
Total Non-Interest Expense	$	29,659	$	30,238	$	(579	)		-1.9	%

Non-interest expense decreased primarily as a result of decreased occupancy and equipment expense due to operating one less branch that was closed in March of 2011 and a much milder winter than normal; decreased salaries and benefits primarily due to changes in employee benefits; and decreased FDIC expense due to the decreased assessment base established in 2011 by the FDIC. These decreases were partially offset by increases in software subscriptions and maintenance and an increase in marketing expense.

44

Income Tax Expense. Income tax expense for the nine months ended September 30, 2012 increased $1.9 million compared to the same period in 2011 because of increased net income. The Company’s effective tax rate increased to 27.3% in the 2012 period from 4.5% in the 2011 period because of increased net income and the decreased low income housing credits as a percentage of net income.

Off-Balance Sheet Activities

In the normal course of operations, the Bank engages in a variety of financial transactions that are not recorded in our financial statements. These transactions involve varying degrees of off-balance sheet credit, interest rate and liquidity risks. These transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. We also have off-balance sheet obligations to repay borrowings and deposits. During the quarter ended September 30, 2012, we engaged in no off-balance sheet transactions likely to have a material effect on our financial condition, results of operations or cash flows. At September 30, 2012, the Bank had $57.4 million in commitments to make loans, $5.7 million in undisbursed portions of closed loans, $84.1 million in unused lines of credit and $2.3 million in standby letters of credit.

Liquidity

Information about the Company’s liquidity needs and management is included in Item 7 of the Form 10-K for the year ended December 31, 2011, filed with the SEC on March 16, 2012, under the heading “Liquidity.”

During the third quarter of 2012, our liquidity levels stayed fairly consistent with that of the prior quarter. The Board of Directors requires the Bank to maintain a minimum liquidity ratio of 10% of deposits. At September 30, 2012, our ratio was 29.9%.

At September 30, 2012, the Company on a consolidated basis, had $387.1 million in cash and investment securities available for sale and $4.1 million in loans held for sale generally available for its cash needs. At September 30, 2012, the Bank had the ability to borrow an additional $183.3 million in FHLB advances and other available funding sources, if needed.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its own operating expenses (many of which are paid to the Bank), the Company is responsible for paying SBLF dividends to the Treasury, amounts owed on its trust preferred securities, any dividends declared to its common shareholders, and interest and principal on outstanding debt. The Company’s primary source of funds is Bank dividends, which are subject to regulatory limits. At September 30, 2012, the Company, on an unconsolidated basis, had $1.7 million in cash, interest-bearing deposits and liquid investments generally available for its cash needs.

At September 30, 2012, the approved outstanding loan commitments, including unused lines of credit, amounted to $149.8 million. Certificates of deposit scheduled to mature in one year or less at September 30, 2012, totaled $239.8 million; however, due to our competitive rates, we believe that a majority of maturing deposits will remain with the Bank.

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

Capital Resources

Effective with the conversion to an Indiana bank charter on January 1, 2012, the Bank became subject to minimum capital requirements imposed by the FDIC, which are substantially the same as the requirements the Bank was previously subject to as a federal savings bank. At September 30, 2012, the Bank’s regulatory capital exceeded these regulatory requirements, and the Bank was well-capitalized under regulatory prompt corrective action standards, consistent with our goals to operate a sound and profitable organization. The FDIC may require the Bank to have additional capital above specific regulatory levels if it believes the Bank is subject to increased risk due to asset problems, high interest rate risk and other risks. The FDIC has not required such additional capital.

45

When the Company became a bank holding company on January 1, 2012, it became subject to minimum capital requirements imposed by the FRB, which are substantially similar to those imposed on the Bank, including guidelines for bank holding companies to be considered well-capitalized. At September 30, 2012, the Company’s capital levels exceeded the bank holding company capital requirements and it was considered well-capitalized under FRB guidelines, consistent with our goals to operate a sound and profitable organization. 

The Company’s and Bank’s relevant capital ratios at September 30, 2012, are reflected below:

	Actual Capital Levels					Minimum Regulatory Capital Levels					Minimum Required To be Considered Well-Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Leverage Capital Level(1):
MutualFirst (Consolidated)	$	123,181		8.47	%	$	57,693		4.0	%	$	72,117		N/A
MutualBank		129,997		8.94			58,140		4.0			72,674		5.0
Tier 1 Risk-Based Capital Level(2) :
MutualFirst (Consolidated)	$	123,181		13.02	%	$	37,837		4.0	%	$	56,756		6.0	%
MutualBank		129,997		13.76			37,796		4.0			56,694		6.0
Total Risk-Based Capital Level(3) :
MutualFirst (Consolidated)	$	135,038		14.28	%	$	75,674		8.0	%	$	94,593		10.0	%
MutualBank		141,854		15.01			75,592		8.0			94,490		10.0

1. Tier 1 Capital to Average Total Assets of $1.5 billion for the Bank and Company, respectively.

2. Tier 1 Capital to Risk-Weighted Assets of $944.9 million and $945.9 for the Bank and Company, respectively.

3. Total Capital to Risk-Weighted Assets of $944.9 million and $945.9 for the Bank and Company, respectively.

Impact of Inflation

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

46

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

Information about the Company’s asset and liability management and market and interest-rate risks is included in Item 7A of the Form 10-K for the year ended December 31, 2011, filed with the SEC on March 16, 2012.

Asset and Liability Management and Market Risk

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally is established contractually for a period of time. Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is one of our most significant market risks.

How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we monitor our interest rate risk. In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates. In order to minimize the potential for adverse effects of material and prolonged changes in interest rates on our results of operations, we adopted asset and liability management policies to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities.

The Bank’s Board of Directors sets and recommends these asset and liability policies, which are implemented by the Asset and Liability Management Committee. The Asset and Liability Management Committee is chaired by the Chief Financial Officer and is comprised of members of our senior management team. The purpose of the Asset and Liability Management Committee is to communicate, coordinate and control asset/liability management issues consistent with our business plan and board-approved policies. This committee establishes and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources consistent with liquidity, capital adequacy, growth, risk and profitability goals. The Asset and Liability Management Committee generally meets monthly to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to a net present value of portfolio equity analysis and income simulations. At each meeting, the Asset and Liability Management Committee recommends appropriate strategy changes based on this review. The chief financial officer is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the Board of Directors, at least quarterly.

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

· Originate and purchase adjustable rate mortgage loans and commercial business loans,

· Originate shorter-duration consumer loans,

· Manage our deposits to establish stable deposit relationships,

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

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

Depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Asset and Liability Management Committee may increase our interest rate risk position somewhat in order to maintain our net interest margin. We will continue to increase our emphasis on the origination of relatively short-term and/or adjustable rate loans. In addition, in an effort to avoid an increase in the percentage of long-term fixed-rate loans in our portfolio, during the quarter ended September 30, 2012, we sold in the secondary market $19.5 million of fixed rate, one- to four-family mortgage loans with a term to maturity of over 15 years.

47

In connection with our conversion to a commercial bank charter in the first quarter of 2012; we formulated a new interest rate risk measurement process that measures both earnings and capital risk in accordance with the FDIC guidance on interest rate risk. The following chart indicates the Bank’s percentage change in net income and capital assuming the most severe movement in interest rates as an immediate parallel rate shock in a range from down 100 basis points to up 400 basis points as of September 30, 2012.

Rate Shock	Net Interest Income  (% Change)			Capital  (% Change)
Up 400 bp		(29.1	)%		(30.4	)%
Up 300 bp		(20.8	)		(18.5	)
Up 200 bp		(13.0	)		(7.7	)
Up 100 bp		(6.0	)		(0.4	)
Down 100 bp		(5.9	)		(20.8	)

The Company also does interest rate shocks that are not immediate parallel shocks in various rate scenarios. Management currently believes that interest rate risk is managed appropriately in more practical rate shock scenarios than those in the chart above.

Item - 4 Controls and Procedures.

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a -15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of September 30, 2012, was carried out under the supervision of and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and several other members of the Company’s senior management since that date. The Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2012, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to the Company’s management (including 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 Exchange Act) that occurred during the quarter ended September 30, 2012 that have materially affected, or are likely to materially affect our internal control over financial reporting.

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

The Company intends to continually review and to 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.

48

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 1A.  Risk Factors

There are no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

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

None.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.

49

Item 6.  Exhibits.

Regulation S-K Exhibit Number	Document	Reference to Prior Filing or Exhibit Number Attached Hereto
3.1	Articles of Incorporation	b
3.2	Articles Supplementary for the Series A Preferred Stock	c
3.3	Articles Supplementary for the SBLF Preferred Stock	a
3.4	Amended Bylaws	k
3.5	Articles Supplementary to the Company’s Charter re: term of appointed directors	l
4.1	Form of Common Stock Certificate	b
4.2	Warrant for Purchase of Shares of Common Stock	c
4.3	Form of Certificate for the Series A Preferred Stock	d
4.4	Form of Certificate for the SBLF Preferred Stock	a
10.1	Employment Agreement with David W. Heeter	p
10.2	Employment Agreement with Patrick C. Botts	p
10.3	Form of Supplemental Retirement Plan Income Agreements for Patrick C. Botts	f
	and David W. Heeter
10.4	Named Executive Officer Salaries and Bonus Arrangements for 2012	n
10.5	Form of Director Shareholder Benefit Program Agreement, as amended, for Jerry D. McVicker	g
10.6	Form of Agreements for Executive Deferred Compensation Plan for Patrick C. Botts and David W. Heeter	f
10.7	Registrant’s 2001 Stock Option and Incentive Plan	h
10.8	Registrant’s 2001 Recognition and Retention Plan	h
10.9	Director Fee Arrangements for 2012	o
10.10	Director Deferred Compensation Plan	i
10.11	MutualFirst Financial, Inc. 2008 Stock Option and Incentive Plan	d
10.12	MFB Corp. 2002 Stock Option Plan	d
10.13	MFB Corp. 1997 Stock Option Plan	d
10.14	Employment Agreement with Charles J. Viater	p
10.15	Salary Continuation Agreement with Charles J. Viater	d
10.16	Letter Agreement (including Schedule A, Securities Purchase Agreement, dated December 23, 2008 between MutualFirst Financial, Inc. and United States Department of the Treasury with respect to the issuance and sale of the Series A Preferred Stock and Warrant	c
10.17	Loan Agreement with First Tennessee Bank National Association dated December 21, 2009.	m
10.18	Form of Incentive Stock Option Agreement for 2008 Stock Option and Incentive Plan	j
10.19	Form of Non-Qualified Stock Option Agreement for 2008 Stock Option and Incentive Plan	j
10.20	Small Business Lending Fund - Securities Purchase Agreement, dated August 25, 2011, between MutualFirst Financial, Inc. and the Secretary of the Treasury, with respect to the issuance and sale of the SBLF Preferred Stock	a
10.21	Repurchase Agreement dated August 25, 2011, between MutualFirst Financial, Inc. and the United States Department of the Treasury, with respect to the repurchase and redemption of the TARP Preferred Stock	a
10.22	Employment Agreement with Christopher D. Cook	p

50

11	Statement re computation of per share earnings	None
12	Statements re computation of ratios	None
18	Letter re change in accounting principles	None
19	Report furnished to security holders	None
22	Published report regarding matters submitted to vote of security holders	None
23	Consents of Experts and Counsel	None
24	Power of Attorney	None
31.1	Rule 13(a)-14(a) Certification (Chief Executive Officer)	31.1
31.2	Rule 13(a)-14(a) Certification (Chief Financial Officer)	31.2
32	Section 1350 Certification	32
101	Financial Statements from the Company’s Form 10-Q for the period ended September 30, 2012, formatted in Extensive Business Reporting Language (XBRL); (i) Consolidated Condensed Balance Sheets as of September 30, 2012 and December 31, 2011; (ii) Consolidated Condensed Statements of Income for the Three and Nine Months Ended September 30, 2012 and 2011; (iii) Consolidated Condensed Statement of Stockholders’ Equity for the Period Ended September 30, 2012; (iv) Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011; and (vi) Notes to Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2012 and 2011, as follows:	101
	101.INS                XBRL Instance Document	101.INS
	101.SCH               XBRL Taxonomy Extension Schema Document	101.SCH
	101.CAL               XBRL Taxonomy Extension Calculation Linkbase Document	101.CAL
	101.DEF               XBRL Taxonomy Extension Definition Linkbase Document	101.DEF
	101.LAB               XBRL Taxonomy Extension Labels Linkbase Document	101.LAB
	101.PRE                XBRL Taxonomy Extension Presentation Linkbase Document	101.PRE

a	Filed as an exhibit to the Company’s Form 8-K filed on August 26, 2011 and incorporated herein by reference.
b	Filed as an exhibit to the Company’s Form S-1 registration statement filed on September 16, 1999 (File No. 333-87239) pursuant to Section 5 of the Securities Act of 1933 and incorporated herein by reference.
c	Filed as an exhibit to the Company’s Form 8-K filed on December 23, 2008 (File No. 000-27905) and incorporated herein by reference.
d	Filed as an Exhibit to the Company’s Annual Report on Form 10-K filed on March 23, 2009 and incorporated herein by reference.
e	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 15, 2004. Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
f	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 30, 2001. Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
g	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on April 2, 2002. Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
h	Filed as an Appendix to the Company’s Form S-4/A Registration Statement filed on October 19, 2001 (File No. 333-46510). Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
i	Filed as an exhibit to the Company’s Annual Report on Form 10-K filed on March 16, 2007. Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
j	Filed as an exhibit to the Company’s Form 10-K filed on March 23, 2010 and incorporated herein by reference.
k	Filed as an exhibit to the Company’s Form 8-K filed on October 15, 2007 (File No. 000-27905). Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
l	Filed as an exhibit to the Company’s Form 8-K filed on July 15, 2008 and incorporated herein by reference.

51

m	Filed as an exhibit to the Company’s Form 8-K filed on December 24, 2009 and incorporated herein by reference.
n	Filed as an exhibit to the Company’s Form 8-K filed on February 15, 2012 and incorporated herein by reference.
o	Filed as an exhibit to the Company’s Form 10-K filed on March 16, 2012 and incorporated herein by reference.
p	Filed as an exhibit to the Company’s Form 10-Q filed on November 14, 2012 and incorporated herein by reference.

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SIGNATURES

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

Date:  November 14, 2012	By:	/s/David W. Heeter
		David W. Heeter
		President and Chief Executive Officer
Date:  November 14, 2012	By:	/s/Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and Chief Financial Officer

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INDEX TO EXHIBITS

Number	Description
10.1	Employment Agreement with David W. Heeter
10.2	Employment Agreement with Patrick C. Botts
10.14	Employment Agreement with Charles J. Viater
10.22	Employment Agreement with Christopher D. Cook
31.1	Rule 13(a)-14(a) Certification (Chief Executive Officer)
31.2	Rule 13(a)-14(a) Certification (Chief Financial Officer)
32	Section 1350 Certification
101	Financial Statements from the Company’s Form 10-Q for the period ended September 30, 2012, formatted in Extensive Business Reporting Language (XBRL); (i) Consolidated Condensed Balance Sheets as of September 30, 2012 and December 31, 2011; (ii) Consolidated Condensed Statements of Income for the Three and Nine Months Ended September 30, 2012 and 2011; (iii) Consolidated Condensed Statement of Stockholders’ Equity for the Period Ended September 30, 2012; (iv) Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011; and (vi) Notes to Consolidated Financial Statements Three and Nine Months Ended September 30, 2012 and 2011, as follows:
	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema Document
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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EX-10.1

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this day of October, 2012 by and between MutualBank (hereinafter referred to as the "Bank"), MutualFirst Financial, Inc. (the "Company") and David W. Heeter (the "Employee").

WHEREAS, the Employee is currently serving as Chief Executive Officer of the Bank and President and Chief Executive Officer of the Company; and

WHEREAS, the Board of Directors of the Bank believes it is in the best interests of the Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee; and

WHEREAS, the Board of Directors of the Company has approved and authorized the execution of this Agreement for the purpose of the Company making the guarantee set forth in Section 19; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement with the Employee to take effect as stated in Section 2 hereof.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

1.             Definitions.

(a)          The term "Change in Control" means (1) an event of a nature that results in a change in control of the Bank or the Company within the meaning of the Bank Holding Company Act of 1956 and 12 C.F.R. Part 225 as in effect on the date hereof; (2) any person (as the term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”)) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Bank or the Company representing 20% or more of the Bank's or the Company's outstanding securities; (3) individuals who are members of the board of directors of the Bank or the Company on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (4) a reorganization, merger, consolidation, sale of all or substantially all of the assets of the Bank or the Company or a similar transaction in which the Bank or the Company is not the resulting entity. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Company. In the application of 12 C.F.R. Part 225 to a determination of a Change in Control, determinations to be made by the Board of Governors of the Federal Reserve System under such regulations shall be made by the Board of Directors; or (5) any other event or circumstance which is not covered by the foregoing subsections but which the Board of Directors determines to affect control of the Company or the Bank and with respect to which the Board of Directors adopts a resolution that the event or circumstance constitutes a Change in Control for purposes of the Agreement.

(b)          The term "Commencement Date" means October 1, 2012.

(c)          The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Bank.

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(d)          The term "Involuntary Termination" means termination of the employment of Employee without the Employee's express written consent, and shall include a material diminution of or interference with the Employee's duties, responsibilities and benefits as Chief Executive Officer of the Bank and President and Chief Executive Officer of the Company, including (without limitation) any of the following actions unless consented to in writing by the Employee: (1) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Employee’s work location as of the date hereof, (2) a material demotion of the Employee; (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank-or Company-wide reduction in staff, (4) a reduction in the Employee’s salary or a material adverse change in the Employee's, perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company; and (5) a material permanent increase in the required hours of work or the workload of the Employee. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

(e)          The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or the Bank. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

(f)          The term “Code” means the Internal Revenue Code of 1986, as amended, or any successor code thereto.

(g)          The term “Section 409A” means Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

2.            Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

3.             Employment. The Employee is employed as Chief Executive Officer of the Bank and President and Chief Executive Officer of the Company as of the Commencement Date. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank and the Company as the Board of Directors may prescribe from time to time.

4.             Compensation.

(a)          Salary. The Bank agrees to pay the Employee during the term of this Agreement, not less frequently than monthly, the salary established by the Board of Directors, which shall be at least $192,500 annually. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank or of the Company under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.

(b)          Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors. Any discretionary bonus shall be paid not later than 2½ months after the year in which the Employee obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted under Section 409A.

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(c)          Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

5.             Benefits.

(a)          Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.

(b)          Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers, including, without limitation, the Company's Stock Option Plan and any restricted stock plan.

6.             Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive employees and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.

7.             Termination of Employment.

(a)          Involuntary Termination. The Board of Directors may terminate the Employee's employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee's right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than in connection with or within twelve (12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining term of this Agreement, the Employee's salary at the rate in effect immediately prior to the Date of Termination, payable in such manner and at such times as such salary would have been payable to the Employee under Section 4 if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement substantially the same benefits as the Bank maintained for its executive officers immediately prior to the Date of Termination, including Bank-paid dependent medical and dental coverage. No payment shall be made under this Section 7(a) unless the Employee’s termination of employment qualifies as a “Separation from Service” (as that phrase is defined in Section 409A taking into account all rules and presumptions provided for in the Section 409A regulations). If the Employee is a “Specified Employee” (as defined in Section 409A) at the time of his Separation from Service, then payments under this Section 7(a) which are not considered paid on account of an involuntary separation from service (as defined in Treasury Regulation Section 1.409A-1(b)(9)(iii)), and as such constitute deferred compensation under Section 409A, shall not be paid until the 185th day following the Employee’s Separation from Service, or his earlier death (the “Delayed Distribution Date”). Any payments deferred on account of the preceding sentence shall be accumulated without interest and paid with the first payment that is payable in accordance with the preceding sentence and Section 409A. To the extent permitted by Section 409A, amounts payable under this Section 7(a) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation.

(b)          Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary and benefits through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.

(c)          Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter period as may be agreed upon between the Employee and the Board of Directors. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.

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(d)          Change in Control. In the event of Involuntary Termination of the Employee within the six months preceding or within 12 months after a Change in Control, the Bank shall, subject to Section 8 of this Agreement and in lieu of the amount set forth in Section 7(a) of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Date of Termination an amount equal to 299% of the Employee's "base amount" as defined in Section 280G of the Code; and (2) provide to the Employee during the remaining term of this Agreement substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Change in Control.

(e)          Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing, shall be entitled to receive from the Bank the salary and benefits of the Employee through the last day of the calendar month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity, this Agreement shall continue in full force and effect, except that the salary paid to the Employee shall be reduced by any disability insurance payments made to Employee on policies of insurance maintained by the Bank at its expense.

(f)          Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended.

(g)          Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(I) of the FDIA, 12 U.S.C. § 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(h)          Default of the Bank. If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(i)          Termination by Regulators. All obligations of the Bank under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Board of Directors of the Federal Deposit Insurance Corporation (the "FDIC Board") or its designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the FDIC Board or its designee, at the time the FDIC Board or its designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the FDIC Board to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action.

8.             Certain Reduction of Payments by the Bank.

(a)          Notwithstanding any other provision of this Agreement, if payments under this Agreement, together with any other payments received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible for federal income tax purposes pursuant to Section 280G of the Code, then benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee without causing any amount to become nondeductible. The Employee shall determine the allocation of such reduction among payments to the Employee.

(b)          Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any regulations promulgated thereunder.

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9.             No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise.

10.           Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 17 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

11.           Non-Solicitation. During the three year period next following the Date of Termination, the Employee shall not directly or indirectly solicit, encourage, or induce any depositor or customer of the Company or the Bank or any affiliates of either the Company or the Bank, to leave the Company, the Bank or any affiliate, or directly or indirectly induce or attempt to persuade any then current employee of the Company, the Bank or any affiliate to terminate their employment.

12.           No Assignments.

(a)            This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of this Section 11(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

(b)          This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.

13.           Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and, shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank or Company at its home office, to the attention of the Board of Directors with a copy to the Secretary, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.

14.           Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

15.           Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

16.           Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

17.           Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Indiana.

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18.           Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

19.           Company Guarantee. The Company hereby guarantees the obligations of the Bank to the Employee under the Employment Agreement. This guarantee shall be subject to the provisions of 12 U.S.C. Section 1828(k) and regulations thereunder.

20.           Supersedes Prior Agreements. This Agreement supersedes any and all prior employment agreements entered into by and between the Employee, the Bank or the Company.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

Attest:	MUTUALBANK
Secretary	By:	Patrick C. Botts
	Its:	President

	MUTUALFIRST FINANCIAL, INC.
Secretary	By:	Patrick C. Botts
	Its:	Executive Vice President

EMPLOYEE

David W. Heeter

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EX-10.2

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this day of October, 2012 by and between MutualBank (hereinafter referred to as the "Bank"), MutualFirst Financial, Inc. (the "Company") and Patrick C. Botts (the "Employee").

WHEREAS, the Employee is currently serving as President of the Bank and Executive Vice President of the Company; and

WHEREAS, the Board of Directors of the Bank believes it is in the best interests of the Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee; and

WHEREAS, the Board of Directors of the Company has approved and authorized the execution of this Agreement for the purpose of the Company making the guarantee set forth in Section 19; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement with the Employee to take effect as stated in Section 2 hereof.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

1.             Definitions.

(a)          The term "Change in Control" means (1) an event of a nature that results in a change in control of the Bank or the Company within the meaning of the Bank Holding Company Act of 1956 and 12 C.F.R. Part 225 as in effect on the date hereof; (2) any person (as the term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”)) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Bank or the Company representing 20% or more of the Bank's or the Company's outstanding securities; (3) individuals who are members of the board of directors of the Bank or the Company on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (4) a reorganization, merger, consolidation, sale of all or substantially all of the assets of the Bank or the Company or a similar transaction in which the Bank or the Company is not the resulting entity. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Company. In the application of 12 C.F.R. Part 225 to a determination of a Change in Control, determinations to be made by the Board of Governors of the Federal Reserve System under such regulations shall be made by the Board of Directors; or (5) any other event or circumstance which is not covered by the foregoing subsections but which the Board of Directors determines to affect control of the Company or the Bank and with respect to which the Board of Directors adopts a resolution that the event or circumstance constitutes a Change in Control for purposes of the Agreement.

(b)          The term "Commencement Date" means October 1, 2012.

(c)          The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Bank.

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(d)          The term "Involuntary Termination" means termination of the employment of Employee without the Employee's express written consent, and shall include a material diminution of or interference with the Employee's duties, responsibilities and benefits as President of the Bank and Executive Vice President of the Company, including (without limitation) any of the following actions unless consented to in writing by the Employee: (1) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Bank's headquarters office as of the date hereof, (2) a material demotion of the Employee; (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank-or Company-wide reduction in staff, (4) a reduction in the Employee’s salary or a material adverse change in the Employee's, perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company; and (5) a material permanent increase in the required hours of work or the workload of the Employee. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

(e)          The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or the Bank. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

(f)          The term “Code” means the Internal Revenue Code of 1986, as amended, or any successor code thereto.

(g)          The term “Section 409A” means Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

2.           Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

3.             Employment. The Employee is employed as President of the Bank and Executive Vice President of the Company as of the Commencement Date. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank and the Company as the Board of Directors may prescribe from time to time.

4.             Compensation.

(a)          Salary. The Bank agrees to pay the Employee during the term of this Agreement, not less frequently than monthly, the salary established by the Board of Directors, which shall be at least $255,000 annually. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank or of the Company under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.

(b)          Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors. Any discretionary bonus shall be paid not later than 2½ months after the year in which the Employee obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted under Section 409A.

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(c)          Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

5.             Benefits.

(a)          Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.

(b)          Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers, including, without limitation, the Company's Stock Option Plan and any restricted stock plan.

6.             Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive employees and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.

7.             Termination of Employment.

(a)          Involuntary Termination. The Board of Directors may terminate the Employee's employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee's right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than in connection with or within twelve (12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining term of this Agreement, the Employee's salary at the rate in effect immediately prior to the Date of Termination, payable in such manner and at such times as such salary would have been payable to the Employee under Section 4 if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement substantially the same benefits as the Bank maintained for its executive officers immediately prior to the Date of Termination, including Bank-paid dependent medical and dental coverage. No payment shall be made under this Section 7(a) unless the Employee’s termination of employment qualifies as a “Separation from Service” (as that phrase is defined in Section 409A taking into account all rules and presumptions provided for in the Section 409A regulations). If the Employee is a “Specified Employee” (as defined in Section 409A) at the time of his Separation from Service, then payments under this Section 7(a) which are not considered paid on account of an involuntary separation from service (as defined in Treasury Regulation Section 1.409A-1(b)(9)(iii)), and as such constitute deferred compensation under Section 409A, shall not be paid until the 185th day following the Employee=s Separation from Service, or his earlier death (the “Delayed Distribution Date”). Any payments deferred on account of the preceding sentence shall be accumulated without interest and paid with the first payment that is payable in accordance with the preceding sentence and Section 409A. To the extent permitted by Section 409A, amounts payable under this Section 7(a) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation.

(b)          Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary and benefits through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.

(c)          Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter period as may be agreed upon between the Employee and the Board of Directors. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.

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(d)          Change in Control. In the event of Involuntary Termination of the Employee within the six months preceding or within 12 months after a Change in Control, the Bank shall, subject to Section 8 of this Agreement and in lieu of the amount set forth in Section 7(a) of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Date of Termination an amount equal to 299% of the Employee's "base amount" as defined in Section 280G of the Code; and (2) provide to the Employee during the remaining term of this Agreement substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Change in Control.

(e)          Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing, shall be entitled to receive from the Bank the salary and benefits of the Employee through the last day of the calendar month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity, this Agreement shall continue in full force and effect, except that the salary paid to the Employee shall be reduced by any disability insurance payments made to Employee on policies of insurance maintained by the Bank at its expense.

(f)          Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended.

(g)          Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(I) of the FDIA, 12 U.S.C. § 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(h)          Default of the Bank. If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(i)          Termination by Regulators. All obligations of the Bank under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Board of Directors of the Federal Deposit Insurance Corporation (the "FDIC Board") or its designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the FDIC Board or its designee, at the time the FDIC Board or its designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the FDIC Board to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action.

8.             Certain Reduction of Payments by the Bank.

(a)          Notwithstanding any other provision of this Agreement, if payments under this Agreement, together with any other payments received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible for federal income tax purposes pursuant to Section 280G of the Code, then benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee without causing any amount to become nondeductible. The Employee shall determine the allocation of such reduction among payments to the Employee.

(b)          Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any regulations promulgated thereunder.

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9.             No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise.

10.           Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 17 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

11.           Non-Solicitation. During the three year period next following the Date of Termination, the Employee shall not directly or indirectly solicit, encourage, or induce any depositor or customer of the Company or the Bank or any affiliates of either the Company or the Bank, to leave the Company, the Bank or any affiliate, or directly or indirectly induce or attempt to persuade any then current employee of the Company, the Bank or any affiliate to terminate their employment.

12.           No Assignments.

(a)          This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of this Section 11(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

(b)          This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.

13.           Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and, shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank or Company at its home office, to the attention of the Board of Directors with a copy to the Secretary, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.

14.           Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

15.           Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

16.           Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

17.           Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Indiana.

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18.           Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

19.           Company Guarantee. The Company hereby guarantees the obligations of the Bank to the Employee under the Employment Agreement. This guarantee shall be subject to the provisions of 12 U.S.C. Section 1828(k) and regulations thereunder.

20.           Supersedes Prior Agreements. This Agreement supersedes any and all prior employment agreements entered into by and between the Employee, the Bank or the Company.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

Attest:	MUTUALBANK
Secretary	By:	David W. Heeter
	Its:	Chief Executive Officer

	MUTUALFIRST FINANCIAL, INC.
Secretary	By:	David W. Heeter
	Its:	President and CEO

EMPLOYEE

Patrick C. Botts

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EX-10.14

EXHIBIT 10.14

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this day of October, 2012 by and between MutualBank (hereinafter referred to as the "Bank"), MutualFirst Financial, Inc. (the "Company") and Charles J. Viater (the "Employee").

WHEREAS, the Employee is currently serving as Northern Region President of the Bank and Senior Vice President of the Company; and

WHEREAS, the Board of Directors of the Bank believes it is in the best interests of the Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee; and

WHEREAS, the Board of Directors of the Company has approved and authorized the execution of this Agreement for the purpose of the Company making the guarantee set forth in Section 19; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement with the Employee to take effect as stated in Section 2 hereof.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

1.             Definitions.

(a)          The term "Change in Control" means (1) an event of a nature that results in a change in control of the Bank or the Company within the meaning of the Bank Holding Company Act of 1956 and 12 C.F.R. Part 225 as in effect on the date hereof; (2) any person (as the term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”)) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Bank or the Company representing 20% or more of the Bank's or the Company's outstanding securities; (3) individuals who are members of the board of directors of the Bank or the Company on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (4) a reorganization, merger, consolidation, sale of all or substantially all of the assets of the Bank or the Company or a similar transaction in which the Bank or the Company is not the resulting entity. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Company. In the application of 12 C.F.R. Part 225 to a determination of a Change in Control, determinations to be made by the Board of Governors of the Federal Reserve System under such regulations shall be made by the Board of Directors; or (5) any other event or circumstance which is not covered by the foregoing subsections but which the Board of Directors determines to affect control of the Company or the Bank and with respect to which the Board of Directors adopts a resolution that the event or circumstance constitutes a Change in Control for purposes of the Agreement.

(b)          The term "Commencement Date" means October 1, 2012.

(c)          The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Bank.

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(d)          The term "Involuntary Termination" means termination of the employment of Employee without the Employee's express written consent, and shall include a material diminution of or interference with the Employee's duties, responsibilities and benefits as Northern Region President of the Bank and Senior Vice President of the Company, including (without limitation) any of the following actions unless consented to in writing by the Employee: (1) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Employee’s work location as of the date hereof, (2) a material demotion of the Employee; (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank-or Company-wide reduction in staff, (4) a reduction in the Employee’s salary or a material adverse change in the Employee's, perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company; and (5) a material permanent increase in the required hours of work or the workload of the Employee. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

(e)          The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or the Bank. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

(f)          The term “Code” means the Internal Revenue Code of 1986, as amended, or any successor code thereto.

(g)          The term “Section 409A” means Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

2.            Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

3.             Employment. The Employee is employed as Northern Region President of the Bank and Senior Vice President of the Company as of the Commencement Date. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank and the Company as the Board of Directors may prescribe from time to time.

4.             Compensation.

(a)          Salary. The Bank agrees to pay the Employee during the term of this Agreement, not less frequently than monthly, the salary established by the Board of Directors, which shall be at least $264,500 annually. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank or of the Company under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.

(b)          Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors. Any discretionary bonus shall be paid not later than 2½ months after the year in which the Employee obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted under Section 409A.

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(c)          Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

5.             Benefits.

(a)          Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.

(b)          Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers, including, without limitation, the Company's Stock Option Plan and any restricted stock plan.

6.             Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive employees and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.

7.             Termination of Employment.

(a)          Involuntary Termination. The Board of Directors may terminate the Employee's employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee's right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than in connection with or within twelve (12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining term of this Agreement, the Employee's salary at the rate in effect immediately prior to the Date of Termination, payable in such manner and at such times as such salary would have been payable to the Employee under Section 4 if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement substantially the same benefits as the Bank maintained for its executive officers immediately prior to the Date of Termination, including Bank-paid dependent medical and dental coverage. No payment shall be made under this Section 7(a) unless the Employee’s termination of employment qualifies as a “Separation from Service” (as that phrase is defined in Section 409A taking into account all rules and presumptions provided for in the Section 409A regulations). If the Employee is a “Specified Employee” (as defined in Section 409A) at the time of his Separation from Service, then payments under this Section 7(a) which are not considered paid on account of an involuntary separation from service (as defined in Treasury Regulation Section 1.409A-1(b)(9)(iii)), and as such constitute deferred compensation under Section 409A, shall not be paid until the 185th day following the Employee’s Separation from Service, or his earlier death (the “Delayed Distribution Date”). Any payments deferred on account of the preceding sentence shall be accumulated without interest and paid with the first payment that is payable in accordance with the preceding sentence and Section 409A. To the extent permitted by Section 409A, amounts payable under this Section 7(a) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation.

(b)          Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary and benefits through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.

(c)          Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter period as may be agreed upon between the Employee and the Board of Directors. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.

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(d)          Change in Control. In the event of Involuntary Termination of the Employee within the six months preceding or within 12 months after a Change in Control, the Bank shall, subject to Section 8 of this Agreement and in lieu of the amount set forth in Section 7(a) of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Date of Termination an amount equal to 299% of the Employee's "base amount" as defined in Section 280G of the Code; and (2) provide to the Employee during the remaining term of this Agreement substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Change in Control.

(e)          Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing, shall be entitled to receive from the Bank the salary and benefits of the Employee through the last day of the calendar month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity, this Agreement shall continue in full force and effect, except that the salary paid to the Employee shall be reduced by any disability insurance payments made to Employee on policies of insurance maintained by the Bank at its expense.

(f)          Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended.

(g)          Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(I) of the FDIA, 12 U.S.C. § 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(h)          Default of the Bank. If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(i)          Termination by Regulators. All obligations of the Bank under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Board of Directors of the Federal Deposit Insurance Corporation (the "FDIC Board") or its designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the FDIC Board or its designee, at the time the FDIC Board or its designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the FDIC Board to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action.

8.             Certain Reduction of Payments by the Bank.

(a)          Notwithstanding any other provision of this Agreement, if payments under this Agreement, together with any other payments received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible for federal income tax purposes pursuant to Section 280G of the Code, then benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee without causing any amount to become nondeductible. The Employee shall determine the allocation of such reduction among payments to the Employee.

(b)          Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any regulations promulgated thereunder.

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9.             No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise.

10.           Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 17 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

11.           Non-Solicitation. During the three year period next following the Date of Termination, the Employee shall not directly or indirectly solicit, encourage, or induce any depositor or customer of the Company or the Bank or any affiliates of either the Company or the Bank, to leave the Company, the Bank or any affiliate, or directly or indirectly induce or attempt to persuade any then current employee of the Company, the Bank or any affiliate to terminate their employment.

12.           No Assignments.

(a)          This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of this Section 11(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

(b)          This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.

13.           Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and, shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank or Company at its home office, to the attention of the Board of Directors with a copy to the Secretary, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.

14.           Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

15.           Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

16.           Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

17.           Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Indiana.

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18.           Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

19.           Company Guarantee. The Company hereby guarantees the obligations of the Bank to the Employee under the Employment Agreement. This guarantee shall be subject to the provisions of 12 U.S.C. Section 1828(k) and regulations thereunder.

20.           Supersedes Prior Agreements. This Agreement supersedes any and all prior employment agreements entered into by and between the Employee, the Bank or the Company.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

Attest:	MUTUALBANK
Secretary	By:	David W. Heeter
	Its:	Chief Executive Officer

	MUTUALFIRST FINANCIAL, INC.
Secretary	By:	David W. Heeter
	Its:	President and CEO

EMPLOYEE

Charles J. Viater

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EX-10.22

EXHIBIT 10.22

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of this day of October, 2012 by and between MutualBank (hereinafter referred to as the "Bank"), MutualFirst Financial, Inc. (the "Company") and Christopher D. Cook (the "Employee").

WHEREAS, the Employee is currently serving as Senior Vice President and Chief Financial Officer of the Bank and Chief Financial Officer of the Company; and

WHEREAS, the Board of Directors of the Bank believes it is in the best interests of the Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Bank and to reinforce and encourage the continued attention and dedication of the Employee; and

WHEREAS, the Board of Directors of the Company has approved and authorized the execution of this Agreement for the purpose of the Company making the guarantee set forth in Section 19; and

WHEREAS, the Board of Directors of the Bank has approved and authorized the execution of this Agreement with the Employee to take effect as stated in Section 2 hereof.

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

1.             Definitions.

(a)          The term "Change in Control" means (1) an event of a nature that results in a change in control of the Bank or the Company within the meaning of the Bank Holding Company Act of 1956 and 12 C.F.R. Part 225 as in effect on the date hereof; (2) any person (as the term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”)) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of the Bank or the Company representing 20% or more of the Bank's or the Company's outstanding securities; (3) individuals who are members of the board of directors of the Bank or the Company on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; (4) a reorganization, merger, consolidation, sale of all or substantially all of the assets of the Bank or the Company or a similar transaction in which the Bank or the Company is not the resulting entity. The term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Bank or the Company. In the application of 12 C.F.R. Part 225 to a determination of a Change in Control, determinations to be made by the Board of Governors of the Federal Reserve System under such regulations shall be made by the Board of Directors; or (5) any other event or circumstance which is not covered by the foregoing subsections but which the Board of Directors determines to affect control of the Company or the Bank and with respect to which the Board of Directors adopts a resolution that the event or circumstance constitutes a Change in Control for purposes of the Agreement.

(b)          The term "Commencement Date" means October 1, 2012.

(c)          The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Bank.

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(d)          The term "Involuntary Termination" means termination of the employment of Employee without the Employee's express written consent, and shall include a material diminution of or interference with the Employee's duties, responsibilities and benefits as Senior Vice President and Chief Financial Officer of the Bank and Chief Financial Officer of the Company, including (without limitation) any of the following actions unless consented to in writing by the Employee: (1) a change in the principal workplace of the Employee to a location outside of a 30 mile radius from the Bank's headquarters office as of the date hereof, (2) a material demotion of the Employee; (3) a material reduction in the number or seniority of other Bank personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which, such personnel are to report to the Employee, other than as part of a Bank-or Company-wide reduction in staff, (4) a reduction in the Employee’s salary or a material adverse change in the Employee's, perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Bank or the Company; and (5) a material permanent increase in the required hours of work or the workload of the Employee. The term "Involuntary Termination" does not include Termination for Cause or termination of employment due to retirement, death, disability or suspension or temporary or permanent prohibition from participation in the conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance Act ("FDIA").

(e)          The terms "Termination for Cause" and "Terminated For Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or the Bank. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors of the Bank at a meeting of the Board called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

(f)          The term “Code” means the Internal Revenue Code of 1986, as amended, or any successor code thereto.

(g)          The term “Section 409A” means Section 409A of the Code and the regulations and guidance of general applicability issued thereunder.

2.            Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that (1) the Bank has not given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; and (2) prior to such anniversary, the Board of Directors of the Bank explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

3.             Employment. The Employee is employed as Senior Vice President and Chief Financial Officer of the Bank and Chief Financial Officer of the Company as of the Commencement Date. As such, the Employee shall render administrative and management services as are customarily performed by persons situated in similar executive capacities, and shall have such other powers and duties of an officer of the Bank and the Company as the Board of Directors may prescribe from time to time.

4.             Compensation.

(a)          Salary. The Bank agrees to pay the Employee during the term of this Agreement, not less frequently than monthly, the salary established by the Board of Directors, which shall be at least $165,000 annually. The amount of the Employee's salary shall be reviewed by the Board of Directors, beginning not later than the first anniversary of the Commencement Date. Adjustments in salary or other compensation shall not limit or reduce any other obligation of the Bank or of the Company under this Agreement. The Employee's salary in effect from time to time during the term of this Agreement shall not thereafter be reduced.

(b)          Discretionary Bonuses. The Employee shall be entitled to participate in an equitable manner with all other executive officers of the Bank in discretionary bonuses as authorized and declared by the Board of Directors to its executive employees. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee's right to participate in such bonuses when and as declared by the Board of Directors. Any discretionary bonus shall be paid not later than 2½ months after the year in which the Employee obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted under Section 409A.

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(c)          Expenses. The Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in performing services under this Agreement in accordance with the policies and procedures applicable to the executive officers of the Bank, provided that the Employee accounts for such expenses as required under such policies and procedures.

5.             Benefits.

(a)          Participation in Retirement and Employee Benefit Plans. The Employee shall be entitled to participate in all plans relating to pension, thrift, profit-sharing, group life and disability insurance, medical and dental coverage, education, cash bonuses, and other retirement or employee benefits or combinations thereof, in which the Bank's executive officers participate.

(b)          Fringe Benefits. The Employee shall be eligible to participate in, and receive benefits under, any fringe benefit plans which are or may become applicable to the Bank's executive officers, including, without limitation, the Company's Stock Option Plan and any restricted stock plan.

6.             Vacations; Leave. The Employee shall be entitled to annual paid vacation in accordance with the policies established by the Board of Directors for executive employees and to voluntary leave of absence, with or without pay, from time to time at such times and upon such conditions as the Board of Directors may determine in its discretion.

7.             Termination of Employment.

(a)          Involuntary Termination. The Board of Directors may terminate the Employee's employment at any time, but, except in the case of Termination for Cause, termination of employment shall not prejudice the Employee's right to compensation or other benefits under this Agreement. In the event of Involuntary Termination other than in connection with or within twelve (12) months after a Change in Control, (1) the Bank shall pay to the Employee during the remaining term of this Agreement, the Employee's salary at the rate in effect immediately prior to the Date of Termination, payable in such manner and at such times as such salary would have been payable to the Employee under Section 4 if the Employee had continued to be employed by the Bank, and (2) the Bank shall provide to the Employee during the remaining term of this Agreement substantially the same benefits as the Bank maintained for its executive officers immediately prior to the Date of Termination, including Bank-paid dependent medical and dental coverage. No payment shall be made under this Section 7(a) unless the Employee’s termination of employment qualifies as a “Separation from Service” (as that phrase is defined in Section 409A taking into account all rules and presumptions provided for in the Section 409A regulations). If the Employee is a “Specified Employee” (as defined in Section 409A) at the time of his Separation from Service, then payments under this Section 7(a) which are not considered paid on account of an involuntary separation from service (as defined in Treasury Regulation Section 1.409A-1(b)(9)(iii)), and as such constitute deferred compensation under Section 409A, shall not be paid until the 185th day following the Employee’s Separation from Service, or his earlier death (the “Delayed Distribution Date”). Any payments deferred on account of the preceding sentence shall be accumulated without interest and paid with the first payment that is payable in accordance with the preceding sentence and Section 409A. To the extent permitted by Section 409A, amounts payable under this Section 7(a) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation.

(b)          Termination for Cause. In the event of Termination for Cause, the Bank shall pay the Employee the Employee's salary and benefits through the Date of Termination, and the Bank shall have no further obligation to the Employee under this Agreement.

(c)          Voluntary Termination. The Employee's employment may be voluntarily terminated by the Employee at any time upon 90 days written notice to the Bank or upon such shorter period as may be agreed upon between the Employee and the Board of Directors. In the event of such voluntary termination, the Bank shall be obligated to continue to pay to the Employee the Employee's salary and benefits only through the Date of Termination, at the time such payments are due, and the Bank shall have no further obligation to the Employee under this Agreement.

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(d)          Change in Control. In the event of Involuntary Termination of the Employee within the six months preceding or within 12 months after a Change in Control, the Bank shall, subject to Section 8 of this Agreement and in lieu of the amount set forth in Section 7(a) of this Agreement, (1) pay to the Employee in a lump sum in cash within 25 business days after the Date of Termination an amount equal to 299% of the Employee's "base amount" as defined in Section 280G of the Code; and (2) provide to the Employee during the remaining term of this Agreement substantially the same health benefits as the Bank maintained for its executive officers immediately prior to the Change in Control.

(e)          Death; Disability. In the event of the death of the Employee while employed under this Agreement and prior to any termination of employment, the Employee's estate, or such person as the Employee may have previously designated in writing, shall be entitled to receive from the Bank the salary and benefits of the Employee through the last day of the calendar month in which the Employee died. If the Employee becomes disabled as defined in the Bank's then current disability plan, if any, or if the employee is otherwise unable to serve in his current capacity, this Agreement shall continue in full force and effect, except that the salary paid to the Employee shall be reduced by any disability insurance payments made to Employee on policies of insurance maintained by the Bank at its expense.

(f)          Temporary Suspension or Prohibition. If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. § 1818(e)(3) and (g)(1), the Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended and (ii) reinstate in whole or in part any of its obligations which were suspended.

(g)          Permanent Suspension or Prohibition. If the Employee is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(I) of the FDIA, 12 U.S.C. § 1818(e)(4) and (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(h)          Default of the Bank. If the Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(i)          Termination by Regulators. All obligations of the Bank under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (1) by the Board of Directors of the Federal Deposit Insurance Corporation (the "FDIC Board") or its designee, at the time the Federal Deposit Insurance Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the FDIC Board or its designee, at the time the FDIC Board or its designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the FDIC Board to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such action.

8.             Certain Reduction of Payments by the Bank.

(a)          Notwithstanding any other provision of this Agreement, if payments under this Agreement, together with any other payments received or to be received by the Employee in connection with a Change in Control would cause any amount to be nondeductible for federal income tax purposes pursuant to Section 280G of the Code, then benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize payments to the Employee without causing any amount to become nondeductible. The Employee shall determine the allocation of such reduction among payments to the Employee.

(b)          Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any regulations promulgated thereunder.

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9.             No Mitigation. The Employee shall not be required to mitigate the amount of any salary or other payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise.

10.           Attorneys Fees. In the event the Bank exercises its right of Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 17 that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

11.           Non-Solicitation. During the three year period next following the Date of Termination, the Employee shall not directly or indirectly solicit, encourage, or induce any depositor or customer of the Company or the Bank or any affiliates of either the Company or the Bank, to leave the Company, the Bank or any affiliate, or directly or indirectly induce or attempt to persuade any then current employee of the Company, the Bank or any affiliate to terminate their employment.

12.           No Assignments.

(a)          This Agreement is personal to each of the parties hereto, and no party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Bank in the same amount and on the same terms as the compensation pursuant to Section 7(d) hereof. For purposes of implementing the provisions of this Section 11(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

(b)          This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee hereunder if the Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee or other designee or if there is no such designee, to the Employee's estate.

13.           Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and, shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, to the Bank or Company at its home office, to the attention of the Board of Directors with a copy to the Secretary, or, if to the Employee, to such home or other address as the Employee has most recently provided in writing to the Bank.

14.           Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

15.           Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

16.           Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

17.           Governing Law. This Agreement shall be governed by the laws of the United States to the extent applicable and otherwise by the laws of the State of Indiana.

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18.           Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction.

19.           Company Guarantee. The Company hereby guarantees the obligations of the Bank to the Employee under the Employment Agreement. This guarantee shall be subject to the provisions of 12 U.S.C. Section 1828(k) and regulations thereunder.

20.           Supersedes Prior Agreements. This Agreement supersedes any and all prior employment agreements entered into by and between the Employee, the Bank or the Company.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

Attest:	MUTUALBANK
Secretary	By:	David W. Heeter
	Its:	Chief Executive Officer

	MUTUALFIRST FINANCIAL, INC.
Secretary	By:	David W. Heeter
	Its:	President and CEO

EMPLOYEE

Christopher D. Cook

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, David W. Heeter, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  November 14, 2012	By:	/s/  David W. Heeter
		David W. Heeter
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Christopher D. Cook, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  November 14, 2012	By:	/s/  Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and Chief Financial Officer
		(Principal Financial and Accounting Officer)

EX-32

EXHIBIT 32

SECTION 1350 CERTIFICATION

Each of the undersigned hereby certifies in his capacity as an officer of MutualFirst Financial, Inc. (the “Registrant”) that the quarterly report of the Registrant on Form 10-Q for the period ended September 30, 2012, 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:  November 14, 2012	By:	/s/David W. Heeter
		David W. Heeter
		President and Chief Executive Officer
Date:  November 14, 2012	By:	/s/Christopher D. Cook
		Christopher D. Cook
		Senior Vice President, Treasurer and Chief Financial Officer

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Age Analysis of Past Due Loans Segregated by Class of Loans (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 15,326	$ 19,967
60-89 Days Past Due	4,423	10,585
Greater Than 90 Days	20,359	26,146
Total Past Due	40,108	56,698
Current	924,739	863,511
Total Loans Receivable	964,847	920,209
Total Loans > 90 Days and Accruing	757	1,127	1,103
Commercial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans Receivable	274,059	282,849
Commercial | Real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	816	1,173
60-89 Days Past Due	161	1,439
Greater Than 90 Days	2,508	6,569
Total Past Due	3,485	9,181
Current	191,980	188,209
Total Loans Receivable	195,465	197,390
Commercial | Construction and development
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	563	845
60-89 Days Past Due		3,595
Greater Than 90 Days	5,805	4,850
Total Past Due	6,368	9,290
Current	10,350	11,541
Total Loans Receivable	16,718	20,831
Commercial | Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	1,167	791
60-89 Days Past Due	158	99
Greater Than 90 Days	780	955
Total Past Due	2,105	1,845
Current	59,771	62,783
Total Loans Receivable	61,876	64,628
Residential Mortgage
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	10,566	13,309
60-89 Days Past Due	3,006	3,427
Greater Than 90 Days	9,345	11,207
Total Past Due	22,917	27,943
Current	468,095	407,033
Total Loans Receivable	491,012	434,976
Total Loans > 90 Days and Accruing	756	1,127
Consumer loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans Receivable	199,776	202,384
Consumer loans | Real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	587	1,395
60-89 Days Past Due	353	1,167
Greater Than 90 Days	1,442	2,081
Total Past Due	2,382	4,643
Current	96,190	92,221
Total Loans Receivable	98,572	96,864
Consumer loans | Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	155	227
60-89 Days Past Due	6	5
Greater Than 90 Days	68	89
Total Past Due	229	321
Current	6,463	6,439
Total Loans Receivable	6,692	6,760
Total Loans > 90 Days and Accruing	1
Consumer loans | Auto
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	63	143
60-89 Days Past Due	4	28
Greater Than 90 Days	33	24
Total Past Due	100	195
Current	15,237	15,008
Total Loans Receivable	15,337	15,203
Consumer loans | Boat/RV
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	1,409	2,084
60-89 Days Past Due	735	825
Greater Than 90 Days	378	371
Total Past Due	2,522	3,280
Current	76,653	80,277
Total Loans Receivable	$ 79,175	$ 83,557

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Newly Restructured Loans by Type (Detail) (Newly restructured loans, USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Commercial | Real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term		$ 403
Combination	439	1,117
Total modification	439	1,520
Commercial | Construction and Land Development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Combination	172	172
Total modification	172	172
Commercial | Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term	46	143
Combination		181
Total modification	46	324
Residential Mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest Only		320
Term	36	169
Combination	698	2,107
Total modification	734	2,596
Consumer loans | Real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term	22	55
Combination	416	775
Total modification	438	830
Consumer loans | Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term		8
Combination	36	44
Total modification	36	52
Consumer loans | Auto
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term	4	11
Combination	4	4
Total modification	8	15
Consumer loans | Boat/RV
Accounts, Notes, Loans and Financing Receivable [Line Items]
Term	95	153
Total modification	$ 95	$ 153

XML

Disclosures About Fair Value of Assets and Liabilities - Additional Information (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Reductions in fair value of other real estate owned	$ 456,000	$ 276,000

XML

Investments - Additional Information (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Investment [Line Items]
Securities pledged as collateral	$ 2,600,000
Gross realized gain on sale of securities	1,600,000	1,900,000
Gross realized losses on sale of securities	0	22,000
Recognized other-than-temporary impairment losses	0	193,000
Fair value of investments reported at less than historical cost	11,294,000		28,458,000
Percentage of Bank portfolio	3.00%		9.00%
Pooled trust preferred securities, amortized cost	334,857,000		328,001,000
Pooled trust preferred securities, fair value	342,863,000		330,878,000
Pooled Trust Preferred Securities
Investment [Line Items]
Gross realized losses on sale of securities
Pooled trust preferred securities, amortized cost	6,743,000
Pooled trust preferred securities, book value	8,000,000
Pooled trust preferred securities, fair value	$ 2,408,000
Banks, thrifts or other depository institutions to all projected defaults
Investment [Line Items]
Collateral recovery probability percentage	10.00%
Insurance Companies to all projected insurance defaults
Investment [Line Items]
Collateral recovery probability percentage	15.00%

XML

Commercial and Retail Credit Exposure Credit Risk Profile by Internal Rating (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 964,847	$ 920,209
Residential Mortgage
Financing Receivable, Recorded Investment [Line Items]
Loans	491,012	434,976
Residential Mortgage | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	474,440	417,772
Residential Mortgage | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	2,031	2,473
Residential Mortgage | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	14,541	14,731
Consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	199,776	202,384
Consumer loans | Real estate
Financing Receivable, Recorded Investment [Line Items]
Loans	98,572	96,864
Consumer loans | Auto
Financing Receivable, Recorded Investment [Line Items]
Loans	15,337	15,203
Consumer loans | Boat/RV
Financing Receivable, Recorded Investment [Line Items]
Loans	79,175	83,557
Consumer loans | Other
Financing Receivable, Recorded Investment [Line Items]
Loans	6,692	6,760
Consumer loans | Pass | Real estate
Financing Receivable, Recorded Investment [Line Items]
Loans	95,994	94,066
Consumer loans | Pass | Auto
Financing Receivable, Recorded Investment [Line Items]
Loans	15,287	15,135
Consumer loans | Pass | Boat/RV
Financing Receivable, Recorded Investment [Line Items]
Loans	78,012	82,639
Consumer loans | Pass | Other
Financing Receivable, Recorded Investment [Line Items]
Loans	6,595	6,680
Consumer loans | Substandard | Real estate
Financing Receivable, Recorded Investment [Line Items]
Loans	2,578	2,798
Consumer loans | Substandard | Auto
Financing Receivable, Recorded Investment [Line Items]
Loans	50	68
Consumer loans | Substandard | Boat/RV
Financing Receivable, Recorded Investment [Line Items]
Loans	1,163	918
Consumer loans | Substandard | Other
Financing Receivable, Recorded Investment [Line Items]
Loans	97	80
Commercial
Financing Receivable, Recorded Investment [Line Items]
Loans	274,059	282,849
Commercial | Real estate
Financing Receivable, Recorded Investment [Line Items]
Loans	195,465	197,390
Commercial | Other
Financing Receivable, Recorded Investment [Line Items]
Loans	61,876	64,628
Commercial | Construction and development
Financing Receivable, Recorded Investment [Line Items]
Loans	16,718	20,831
Commercial | Pass | Real estate
Financing Receivable, Recorded Investment [Line Items]
Loans	169,089	167,991
Commercial | Pass | Other
Financing Receivable, Recorded Investment [Line Items]
Loans	57,472	56,691
Commercial | Pass | Construction and development
Financing Receivable, Recorded Investment [Line Items]
Loans	8,686	8,093
Commercial | Special Mention | Real estate
Financing Receivable, Recorded Investment [Line Items]
Loans	15,392	11,940
Commercial | Special Mention | Other
Financing Receivable, Recorded Investment [Line Items]
Loans	300	880
Commercial | Special Mention | Construction and development
Financing Receivable, Recorded Investment [Line Items]
Loans	172	538
Commercial | Substandard | Real estate
Financing Receivable, Recorded Investment [Line Items]
Loans	10,984	16,488
Commercial | Substandard | Other
Financing Receivable, Recorded Investment [Line Items]
Loans	3,234	6,260
Commercial | Substandard | Construction and development
Financing Receivable, Recorded Investment [Line Items]
Loans	7,860	12,105
Commercial | Doubtful | Real estate
Financing Receivable, Recorded Investment [Line Items]
Loans		971
Commercial | Doubtful | Other
Financing Receivable, Recorded Investment [Line Items]
Loans	870	797
Commercial | Doubtful | Construction and development
Financing Receivable, Recorded Investment [Line Items]
Loans		$ 95

XML

Categories of Loans (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 964,847		$ 920,209
Undisbursed loans in process	(4,372)		(5,352)
Unamortized deferred loan costs, net	2,436		2,418
Allowance for loan losses	(15,536)	(16,003)	(16,815)	(16,481)	(15,957)	(16,372)
Net loans	947,375		900,460
Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	274,059		282,849
Allowance for loan losses	(9,521)	(10,004)	(10,602)	(10,752)	(9,790)	(10,124)
Commercial | Real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	195,465		197,390
Commercial | Construction and development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	16,718		20,831
Commercial | Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	61,876		64,628
Residential Mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	491,012		434,976
Allowance for loan losses	(3,563)	(3,392)	(3,444)	(1,834)	(2,135)	(2,212)
Residential Mortgage | One- to four- family
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	491,012		434,976
Consumer loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	199,776		202,384
Allowance for loan losses	(2,452)	(2,607)	(2,769)	(3,895)	(4,032)	(4,036)
Consumer loans | Real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	98,572		96,864
Consumer loans | Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	6,692		6,760
Consumer loans | Auto
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	15,337		15,203
Consumer loans | Boat/RV
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 79,175		$ 83,557

XML

Troubled Debts Restructured Defaulted (Detail) (Defaulted Loans, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2012 Investment
Commercial | Real estate
Financing Receivable, Modifications [Line Items]
No. of Loans	1
Post-Modification Outstanding Recorded Balance	$ 109
Commercial | Other
Financing Receivable, Modifications [Line Items]
No. of Loans	1
Post-Modification Outstanding Recorded Balance	518
Residential Mortgage
Financing Receivable, Modifications [Line Items]
No. of Loans	1
Post-Modification Outstanding Recorded Balance	31
Consumer loans | Other
Financing Receivable, Modifications [Line Items]
No. of Loans	1
Post-Modification Outstanding Recorded Balance	$ 14

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2012

Basis of Presentation

Note 1:  Basis of Presentation

The consolidated condensed financial statements include the accounts of MutualFirst Financial, Inc. (MutualFirst or the “Company”), its wholly owned subsidiary MutualBank, an Indiana commercial bank (“Mutual” or the “Bank”), 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 annual report on Form 10-K for year ended December 31, 2011, filed with the Securities and Exchange Commission on March 16, 2012.

The interim consolidated financial statements at September 30, 2012, 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 periods 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, 2011 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

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Activity in Allowance for Loan Losses by Portfolio Segment (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, beginning of period	$ 16,003	$ 15,957	$ 16,815	$ 16,372	$ 16,372
Provision charged to expense	1,475	3,200	4,675	9,100	13,100
Losses charged off	2,257	3,037	7,040	9,873	13,818
Recoveries	315	361	1,086	882	1,161
Allowance for loan losses, end of period	15,536	16,481	15,536	16,481	16,815
Allowance for loan losses, individually evaluated for impairment, ending balance	769		769		2,225
Allowance for loan losses, collectively evaluated for impairment, ending balance	14,767		14,767		14,590
Loans, individually evaluated for impairment, ending balance	18,788		18,788		31,324
Loans, collectively evaluated for impairment, ending balance	946,059		946,059		888,885
Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, beginning of period	10,004	9,790	10,602	10,124	10,124
Provision charged to expense	985	2,915	2,410	6,145	8,592
Losses charged off	1,484	2,017	4,034	5,582	8,260
Recoveries	16	64	543	65	146
Allowance for loan losses, end of period	9,521	10,752	9,521	10,752	10,602
Allowance for loan losses, individually evaluated for impairment, ending balance	732		732		2,189
Allowance for loan losses, collectively evaluated for impairment, ending balance	8,789		8,789		8,413
Loans, individually evaluated for impairment, ending balance	14,299		14,299		25,409
Loans, collectively evaluated for impairment, ending balance	259,760		259,760		257,440
Residential Mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, beginning of period	3,392	2,135	3,444	2,212	2,212
Provision charged to expense	480	100	1,571	2,100	4,390
Losses charged off	505	464	1,652	2,644	3,432
Recoveries	196	63	200	166	274
Allowance for loan losses, end of period	3,563	1,834	3,563	1,834	3,444
Allowance for loan losses, individually evaluated for impairment, ending balance	37		37		36
Allowance for loan losses, collectively evaluated for impairment, ending balance	3,526		3,526		3,408
Loans, individually evaluated for impairment, ending balance	4,489		4,489		5,915
Loans, collectively evaluated for impairment, ending balance	486,523		486,523		429,061
Consumer loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, beginning of period	2,607	4,032	2,769	4,036	4,036
Provision charged to expense	10	185	694	855	118
Losses charged off	268	556	1,354	1,647	2,126
Recoveries	103	234	343	651	741
Allowance for loan losses, end of period	2,452	3,895	2,452	3,895	2,769
Allowance for loan losses, collectively evaluated for impairment, ending balance	2,452		2,452		2,769
Loans, collectively evaluated for impairment, ending balance	$ 199,776		$ 199,776		$ 202,384

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Debt Securities for which Credit Loss was Recognized in Income and Other Losses Recorded in Other Comprehensive Income (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Credit losses on debt securities held, beginning of year	$ (1,205)	$ (1,205)	$ (1,205)	$ (1,179)
Additions related to increases in previously recognized other-than-temporary losses				(26)
Credit losses on debt securities held, end of period	$ (1,205)	$ (1,205)	$ (1,205)	$ (1,205)

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Bank's Investment in Trust Preferred Securities (Parenthetical) (Detail)	Sep. 30, 2012
Banks, thrifts or other depository institutions to all projected defaults
Investment Holdings [Line Items]
Collateral recovery probability percentage	10.00%
Insurance Companies to all projected insurance defaults
Investment Holdings [Line Items]
Collateral recovery probability percentage	15.00%

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Non-Performing Assets excluding Restructured Loans (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 23,112		$ 25,937
Accruing loans 90 days + past due	757	1,127	1,103
Total non-performing loans	23,869		27,040
Foreclosed real estate	6,184	6,525	5,686
Other repossessed assets	573		1,142
Total non-performing assets	$ 30,626		$ 33,868

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Components of Accumulated Other Comprehensive Income (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accumulated Other Comprehensive Income (Loss) [Line Items]
Net unrealized gain on securities available-for-sale	$ 11,815	$ 6,666
Net unrealized loss on securities available-for-sale for which a portion of other-than-temporary impairment has been recognized in income	(3,808)	(3,788)
Net unrealized loss on derivative used for cash flow hedges	(456)	(472)
Net unrealized loss relating to defined benefit plan liability	(448)	(448)
Accumulated Other Comprehensive Income (Loss), Before Taxes, Total	7,103	1,958
Tax expense	2,540	755
Net-of-tax amount	$ 4,563	$ 1,203

XML

Fair Value Measurement of Assets Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	$ 342,863	$ 330,878
Mortgage-backed securities, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	187,439	202,846
Collateralized mortgage obligations, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	128,964	100,061
Federal agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	3,018	2,002
Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	3,272	3,558
Small Business Administration
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	9	12
Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	20,161	22,399
Fair Value, Inputs, Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	340,455	328,424
Fair Value, Inputs, Level 2 | Mortgage-backed securities, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	187,439	202,846
Fair Value, Inputs, Level 2 | Collateralized mortgage obligations, Government sponsored agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	128,964	100,061
Fair Value, Inputs, Level 2 | Federal agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	3,018	2,002
Fair Value, Inputs, Level 2 | Municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	3,272	3,558
Fair Value, Inputs, Level 2 | Small Business Administration
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	9	12
Fair Value, Inputs, Level 2 | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	17,753	19,945
Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	2,408	2,454
Fair Value, Inputs, Level 3 | Corporate obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	$ 2,408	$ 2,454

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Consolidated Condensed Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Operating Activities
Net income	$ 5,244	$ 2,435
Items not requiring (providing) cash
Provision for loan losses	4,675	9,100
Depreciation and amortization	4,337	4,648
Deferred income tax	705	(336)
Loans originated for sale	(30,184)	(16,976)
Proceeds from sales of loans held for sale	32,203	26,355
Gains on sales of loans held for sale	(1,388)	(685)
Gain on sale of securities-available-for sale	(1,575)	(1,839)
Loss on sale of premise and equipment		44
Loss on other real estate and repossessed assets	523	2,630
Loss on other-than-temporary impairment, securities	0	193
Other equity adjustments	340	255
Change in
Prepaid FDIC premium	874	1,088
Interest receivable and other assets	588	(21,987)
Interest payable and other liabilities	(46)	721
Cash value of life insurance	(1,017)	(1,071)
Other adjustments	468	(56)
Net cash provided by operating activities	15,747	4,519
Investing Activities
Net change in interest earning assets	1,415
Purchases of securities available-for-sale	(104,448)	(119,349)
Proceeds from maturities and paydowns of securities available-for-sale	50,641	29,714
Proceeds from sale of securities-available for sale	47,141	56,436
Redemption of Federal Home Loan Bank Stock		2,292
Net change in loans	(63,700)	18,458
Proceeds from sales of loans transferred to held for sale	3,669
Purchases of premises and equipment	(1,702)	(452)
Proceeds from real estate owned sales	4,132	3,396
Other investing activities	(22)	(37)
Net cash used in investing activities	(62,874)	(9,542)
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits	81,587	60,709
Certificates of deposit	(55,193)	(4,157)
Proceeds from FHLB advances	382,250	47,600
Repayment of FHLB advances	(370,450)	(81,375)
Repayment of other borrowings	(630)	(595)
Preferred stock issued		28,923
Stock/warrants repurchased		(33,282)
Cash dividends paid	(2,343)	(2,517)
Other financing activities	1,002	742
Net cash provided by financing activities	36,223	16,048
Net Change in Cash and Cash Equivalents	(10,904)	11,025
Cash and Cash Equivalents, Beginning of Period	55,223	26,821
Cash and Cash Equivalents, End of Period	44,319	37,846
Additional Cash Flows Information
Interest paid	11,480	15,132
Income tax paid	200	200
Transfers from loans to foreclosed real estate	4,102	7,344
Mortgage servicing rights capitalized	$ 231	$ 397

XML

Reconciliation of Recurring Fair Value Measurements Recognized in Balance Sheet using Significant Unobservable (Level Three) Inputs (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning balance	$ 2,264	$ 2,958	$ 2,454	$ 2,645
Total realized and unrealized gains and losses
Included in net income				(193)
Included in other comprehensive loss	144	(418)	(36)	57
Purchases, issuances and settlements		13	(10)	44
Ending balance	2,408	2,553	2,408	2,553
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date				$ (193)

XML

Loans - Additional Information (Detail) (USD $)	Sep. 30, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Threshold evaluations currently set	$ 250,000

XML

Consolidated Condensed Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Assets
Cash	$ 7,111	$ 7,710
Interest-bearing demand deposits	37,208	47,513
Cash and cash equivalents	44,319	55,223
Interest-bearing deposits		1,415
Investment securities available for sale	342,863	330,878
Loans held for sale	4,072	1,441
Loans	962,911	917,275
Allowance for loan losses	(15,536)	(16,815)
Net loans	947,375	900,460
Premises and equipment	32,344	32,025
Federal Home Loan Bank of Indianapolis stock, at cost	14,391	14,391
Investment in limited partnerships	2,730	3,113
Deferred income tax benefit	14,896	17,386
Income tax receivable	278	1,344
Cash surrender value of life insurance	48,076	47,023
Prepaid FDIC premium	1,947	2,821
Core deposit and other intangibles	2,634	3,373
Foreclosed real estate	6,184	6,525
Other assets	10,287	9,775
Total assets	1,472,396	1,427,193
Deposits
Non-interest-bearing	133,244	122,215
Interest-bearing	1,059,787	1,044,422
Total deposits	1,193,031	1,166,637
Federal Home Loan Bank advances	113,194	101,451
Other borrowings	11,812	12,410
Other liabilities	15,084	14,068
Total liabilities	1,333,121	1,294,566
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par value Authorized - 5,000,000 shares Issued and outstanding - 28,923 shares; liquidation preference $1,000 per share	1	1
Common stock, $.01 par value Authorized - 20,000,000 shares Issued and outstanding - 6,993,971 and 6,987,586 shares	70	70
Additional paid-in capital - preferred stock	28,923	28,923
Additional paid-in capital - common stock	71,944	71,796
Retained earnings	34,171	31,270
Accumulated other comprehensive income	4,563	1,203
Unearned employee stock ownership plan (ESOP) shares	(397)	(636)
Total stockholders' equity	139,275	132,627
Total liabilities and stockholders' equity	$ 1,472,396	$ 1,427,193

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Troubled Debts Restructured (Detail) (Troubled debts restructured, USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012 Investment	Sep. 30, 2011 Investment	Sep. 30, 2012 Investment	Sep. 30, 2011 Investment
Commercial | Real estate
Financing Receivable, Modifications [Line Items]
No. of Loans	1	1	4	1
Pre-Modification Outstanding Recorded Balance	$ 439	$ 113	$ 1,359	$ 113
Post-Modification Outstanding Recorded Balance	439	70	1,520	70
Commercial | Construction and Land Development
Financing Receivable, Modifications [Line Items]
No. of Loans	1		1	2
Pre-Modification Outstanding Recorded Balance	172		172	3,728
Post-Modification Outstanding Recorded Balance	172		172	3,728
Commercial | Other
Financing Receivable, Modifications [Line Items]
No. of Loans	2		5	1
Pre-Modification Outstanding Recorded Balance	46		262	103
Post-Modification Outstanding Recorded Balance	46		324	103
Residential Mortgage
Financing Receivable, Modifications [Line Items]
No. of Loans	10	6	28	22
Pre-Modification Outstanding Recorded Balance	719	463	2,455	2,529
Post-Modification Outstanding Recorded Balance	734	492	2,596	2,598
Consumer loans | Real estate
Financing Receivable, Modifications [Line Items]
No. of Loans	14	10	24	22
Pre-Modification Outstanding Recorded Balance	439	231	830	555
Post-Modification Outstanding Recorded Balance	438	231	830	551
Consumer loans | Other
Financing Receivable, Modifications [Line Items]
No. of Loans	2		4	1
Pre-Modification Outstanding Recorded Balance	36		53	14
Post-Modification Outstanding Recorded Balance	36		52	1
Consumer loans | Auto
Financing Receivable, Modifications [Line Items]
No. of Loans	2	1	3	1
Pre-Modification Outstanding Recorded Balance	9	10	16	10
Post-Modification Outstanding Recorded Balance	8	10	15	10
Consumer loans | Boat/RV
Financing Receivable, Modifications [Line Items]
No. of Loans	4	4	7	12
Pre-Modification Outstanding Recorded Balance	96	134	154	364
Post-Modification Outstanding Recorded Balance	$ 95	$ 133	$ 153	$ 357

XML

Consolidated Condensed Statement of Stockholders' Equity (USD $) In Thousands, except Share data	Total	Common Stock	Additional paid-in capital	Preferred Stock	Additional paid-in capital	Retained Earnings	Accumulated Other Comprehensive Income	Unearned ESOP shares
Beginning Balance at Dec. 31, 2011	$ 132,627	$ 70	$ 71,796	$ 1	$ 28,923	$ 31,270	$ 1,203	$ (636)
Beginning Balance (in shares) at Dec. 31, 2011		6,987,586		28,923
Net income for the period	5,244					5,244
Other comprehensive income, net of tax	3,360						3,360
ESOP shares earned	238		(1)					239
Stock options vested	102		102
Stock options exercised (in shares)		6,385
Stock options exercised	47		47
Cash dividends ($.18 per common share)	(1,258)					(1,258)
Cash dividends - preferred stock	(1,085)					(1,085)
Ending Balance at Sep. 30, 2012	$ 139,275	$ 70	$ 71,944	$ 1	$ 28,923	$ 34,171	$ 4,563	$ (397)
Ending Balance (in shares) at Sep. 30, 2012		6,993,971		28,923

XML

Quantitative Information about Unobservable Inputs used in Recurring and Nonrecurring Level Three Fair Value Measurements (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Pooled Trust Preferred Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 2,408
Valuation Technique	Discounted cash flow
Constant prepayment rate	2.00%
Cumulative projected prepayments	30.00%
Pooled Trust Preferred Securities | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	9.00%
Probability of default	1.50%
Projected cures given deferral	0.00%
Loss severity	56.70%
Pooled Trust Preferred Securities | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	16.00%
Probability of default	2.40%
Projected cures given deferral	15.00%
Loss severity	81.40%
Impaired loans (collateral dependent)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	7,235
Valuation Technique	Third party valuations
Impaired loans (collateral dependent) | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	0.00%
Impaired loans (collateral dependent) | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount rate	40.00%
Foreclosed real estate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	2,136
Valuation Technique	Third party valuations
Foreclosed real estate | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount to reflect realizable value less estimated selling costs	0.00%
Foreclosed real estate | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Discount to reflect realizable value less estimated selling costs	25.00%
Mortgage servicing rights
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 2,109
Valuation Technique	Third party valuations
Discount rate	9.00%
Servicing fee	0.25%
Mortgage servicing rights | Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Constant prepayment rate	220.00%
Mortgage servicing rights | Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Constant prepayment rate	700.00%

XML

Earnings Per Share - Additional Information (Detail) (Stock options)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from earnings per share computation	250,681	499,637	250,681	499,637

XML

Estimated Fair Values of Financial Instruments (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Dec. 31, 2010
Assets, carrying amount
Cash and cash equivalents	$ 44,319	$ 55,223	$ 37,846	$ 26,821
Interest-bearing deposits		1,415
Loans held for sale, carrying amount	4,072	1,441
Loans, carrying amount	947,375	900,460
FHLB stock, carrying amount	14,391	14,391
Interest receivable, carrying amount	3,930	4,248
Liabilities, carrying amount
Deposits, carrying amount	1,193,031	1,166,637
FHLB advances, carrying amount	113,194	101,451
Other borrowings, carrying amount	11,812	12,410
Interest payable, carrying amount	447	340
Advances by borrowers for taxes and insurance, carrying amount	2,675	1,720
Assets
Cash and cash equivalents	44,319	55,223
Interest-bearing deposits		1,415
Loans held for sale, fair value	4,216	1,459
Loans, fair value	977,803	921,212
FHLB stock, fair value	14,391	14,391
Interest receivable, fair value	3,930	4,248
Liabilities, fair value
Deposits, fair value	1,210,969	1,132,031
FHLB advances, fair value	115,174	103,980
Other borrowings, fair value	13,006	13,083
Interest payable, fair value	447	340
Advances by borrowers for taxes and insurance, fair value	2,675	1,720
Fair Value, Inputs, Level 1
Assets
Cash and cash equivalents	44,319
Liabilities, fair value
Deposits, fair value	596,913
Fair Value, Inputs, Level 2
Assets
Loans held for sale, fair value	4,216
FHLB stock, fair value	14,391
Interest receivable, fair value	3,930
Liabilities, fair value
FHLB advances, fair value	115,174
Other borrowings, fair value	13,006
Interest payable, fair value	447
Advances by borrowers for taxes and insurance, fair value	2,675
Fair Value, Inputs, Level 3
Assets
Loans, fair value	977,803
Liabilities, fair value
Deposits, fair value	$ 614,056

XML

Amortized Cost and Fair Value of Available-for-Sale Securities by Contractual Maturity (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Security obligations due, amortized cost, One to five years	$ 17,356
Security obligations due, amortized cost, Five to ten years	4,946
Security obligations due, amortized cost, After ten years	7,926
Total security obligations due	30,228
Available for sale, Amortized Cost	334,857	328,001
Security obligations due, Fair value, One to five years	17,752
Security obligations due, Fair value, Five to ten years	4,972
Security obligations due, Fair value, After ten years	3,727
Total Security obligations due, Fair value	26,451
Available for sale, Fair Value	342,863	330,878
Mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	179,467
Available for sale, Fair Value	187,439
Collateralized mortgage obligations
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	125,153
Available for sale, Fair Value	128,964
Small Business Administration
Schedule of Available-for-sale Securities [Line Items]
Available for sale, Amortized Cost	9	12
Available for sale, Fair Value	$ 9	$ 12

XML

Consolidated Condensed Statement of Stockholders' Equity (Parenthetical) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Cash dividends, per common share	$ 0.06	$ 0.06	$ 0.18	$ 0.18

XML

Consolidated Condensed Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, Authorized	5,000,000	5,000,000
Preferred stock, Issued	28,923	28,923
Preferred stock, outstanding	28,923	28,923
Preferred stock, liquidation preference	$ 1,000	$ 1,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, Authorized	20,000,000	20,000,000
Common stock, Issued	6,993,971	6,987,586
Common stock, outstanding	6,993,971	6,987,586

XML

Investments (Tables)

9 Months Ended

Sep. 30, 2012

Amortized Cost and Fair Values of Securities

The amortized cost and approximate fair values of securities as of September 30, 2012 and December 31, 2011 are as follows.

	September 30, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for Sale Securities
Mortgage-backed securities
Government sponsored agencies	$	179,467	$	7,972	$	-		$	187,439
Collateralized mortgage obligations
Government sponsored agencies		125,153		3,845		(34	)		128,964
Federal agencies		3,000		18		0			3,018
Municipals		3,129		158		(15	)		3,272
Small Business Administration		9		-		-			9
Corporate obligations		24,099		397		(4,335	)		20,161
Total	$	334,857	$	12,390	$	(4,384	)	$	342,863

	December 31, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for Sale Securities
Mortgage-backed securities
Government sponsored agencies	$	198,039	$	4,813	$	(6	)	$	202,846
Collateralized mortgage obligations
Government sponsored agencies		97,098		2,963		-			100,061
Federal agencies		2,000		2		-			2,002
Municipals		3,364		208		(14	)		3,558
Small Business Administration		12		-		-			12
Corporate obligations		27,488		-		(5,089	)		22,399
Total	$	328,001	$	7,986	$	(5,109	)	$	330,878

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

The amortized cost and fair value of available-for-sale securities at September 30, 2012, 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
	Amortized		Fair
Description Securities	Cost		Value
Security obligations due
One to five years	$	17,356	$	17,752
Five to ten years		4,946		4,972
After ten years		7,926		3,727
		30,228		26,451
Mortgage-backed securities		179,467		187,439
Collateralized mortgage obligations		125,153		128,964
Small Business Administration		9		9
Totals	$	334,857	$	342,863

Investments Gross Unrealized Losses and Fair Value in Continuous Unrealized Loss Position

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, 2012 and December 31, 2011:

	September 30, 2012
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Available for Sale
Collateralized mortgage obligations
Government sponsored agencies	$	8,010	$	(34	)	$	-	$	-		$	8,010	$	(34	)
Municipals		876		(15	)		-		-			876		(15	)
Corporate obligations		-		-			2,408		(4,335	)		2,408		(4,335	)
Total temporarily impaired securities	$	8,886	$	(49	)	$	2,408	$	(4,335	)	$	11,294	$	(4,384	)

	December 31, 2011
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Available for Sale
Mortgage-backed securities
Government sponsored agencies	$	5,076	$	(6	)	$	-	$	-		$	5,076	$	(6	)
Municipals		971		(14	)		-		-			971		(14	)
Corporate obligations		19,957		(790	)		2,454		(4,299	)		22,411		(5,089	)
Total temporarily impaired securities	$	26,004	$	(810	)	$	2,454	$	(4,299	)	$	28,458	$	(5,109	)

Bank's Investment in Trust Preferred Securities

The following table provides additional information related to the Bank’s investment in trust preferred securities as of September 30, 2012:

Deal	Class		Original Par		Book Value		Fair Value		Unrealized Loss		Recognized Losses 2012		Lowest Rating	Number of Banks/Insurance Companies Currently Performing		Actual Deferrals/Defaults (as % of original collateral)			Total Projected Defaults (as a % of performing collateral)a			Excess Subordination (after taking into account best estimate of future deferrals/defaults)b
Alesco Preferred Funding IX		A2A	$	1,000	$	902	$	375	$	527	$	-	B2		44		16.64	%		15.38	%		44.11	%
Preferred Term Securities XIII		B1		1,000		823		254		569		-	Ca		40		34.94	%		27.67	%		0.84	%
Preferred Term Securities XVIII		C		1,000		917		210		707		-	Ca		48		29.43	%		16.14	%		1.73	%
Preferred Term Securities XXVII		C1		1,000		710		200		510		-	C		34		26.61	%		22.84	%		6.09	%
U.S. Capital Funding I		B1		3,000		2,891		1,148		1,743		-	Caa1		30		15.90	%		14.84	%		1.55	%
U.S. Capital Funding III		B1		1,000		500		221		279		-	Ca		28		27.94	%		16.86	%		0.00	%
Total			$	8,000	$	6,743	$	2,408	$	4,335	$	-

(a)

A 10% recovery is applied to all projected defaults.  A 15% recovery is applied to all projected insurance defaults.  No recovery is applied to current defaults.

(b)

Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. Excess subordinated percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and expected future default percentages.

Debt Securities for which Credit Loss was Recognized in Income and Other Losses Recorded in Other Comprehensive Income

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

	Accumulated Credit Losses Three Months Ended September 30,
	2012			2011
Credit losses on debt securities held
Beginning of period	$	(1,205	)	$	(1,205	)
Additions related to increases in previously recognized other-than-temporary losses for the three months ended		-			-
As of September 30,	$	(1,205	)	$	(1,205	)

	Accumulated Credit Losses Nine Months Ended September 30,
	2012			2011
Credit losses on debt securities held
Beginning of year	$	(1,205	)	$	(1,179	)
Additions related to increases in previously recognized other-than-temporary losses for the nine months ended		-			(26	)
As of September 30,	$	(1,205	)	$	(1,205	)

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 09, 2012
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	MFSF
Entity Registrant Name	MUTUALFIRST FINANCIAL INC
Entity Central Index Key	0001094810
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		6,994,637

XML

Accumulated Other Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2012

Accumulated Other Comprehensive Gain (Loss)

The following table represents the components of accumulated other comprehensive income:

	September 30,			December 31,
	2012			2011
Net unrealized gain on securities available-for-sale	$	11,815		$	6,666
Net unrealized loss on securities available-for-sale for which a portion of other-than-temporary impairment has been recognized in income		(3,808	)		(3,788	)
Net unrealized loss on derivative used for cash flow hedges		(456	)		(472	)
Net unrealized loss relating to defined benefit plan liability		(448	)		(448	)
		7,103			1,958
Tax expense		2,540			755
Net-of-tax amount	$	4,563		$	1,203

XML

Consolidated Condensed Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest Income
Loans receivable, including fees	$ 11,532	$ 12,992	$ 34,760	$ 40,091
Investment securities:
Mortgage-backed securities	2,054	1,964	6,161	5,805
Federal Home Loan Bank stock	107	107	323	315
Other investments	201	170	634	460
Deposits with financial institutions	14	17	29	68
Total interest income	13,908	15,250	41,907	46,739
Interest Expense
Passbook savings	13	27	39	98
Certificates of deposit	2,523	3,459	8,032	11,007
Daily Money Market accounts	102	127	302	370
Demand and NOW accounts	226	292	674	886
Federal Home Loan Bank advances	533	741	1,733	2,486
Other interest expense	196	208	593	628
Total interest expense	3,593	4,854	11,373	15,475
Net Interest Income	10,315	10,396	30,534	31,264
Provision for losses on loans	1,475	3,200	4,675	9,100
Net Interest Income After Provision for Loan Losses	8,840	7,196	25,859	22,164
Other Income
Service fee income	1,644	1,862	5,049	5,193
Net realized gain on sale of securities	1,095	1,764	1,575	1,839
Equity in losses of limited partnerships	(124)	(107)	(372)	(256)
Commissions	859	879	2,914	2,835
Net gains on sales of loans	541	245	1,388	685
Net servicing fees (expenses)	(16)	(337)	(126)	(293)
Increase in cash surrender value of life insurance	340	346	1,017	1,071
Gain (loss) on sale of other real estate and repossessed assets	30	(22)	(523)	(358)
Other-than-temporary losses on securities
Total other-than-temporary losses				(723)
Portion of loss recognized in other comprehensive income (before taxes)				530
Net impairment losses recognized in earnings			0	(193)
Other income	12	34	93	100
Total other income	4,381	4,664	11,015	10,623
Other Expenses
Salaries and employee benefits	5,273	5,240	15,910	16,103
Net occupancy expenses	641	583	1,744	1,917
Equipment expenses	454	505	1,346	1,487
Data processing fees	361	373	1,178	1,153
Automated teller machine	258	241	743	776
Deposit insurance	312	330	939	1,170
Professional fees	420	433	1,188	1,169
Advertising and promotion	488	453	1,214	1,053
Software subscriptions and maintenance	384	338	1,145	969
Intangible amortization	229	280	745	894
Other real estate and repossessed assets	247	279	691	746
Other expenses	1,066	982	2,816	2,801
Total other expenses	10,133	10,037	29,659	30,238
Income Before Income Tax	3,088	1,823	7,215	2,549
Income tax expense	915	375	1,971	114
Net Income	2,173	1,448	5,244	2,435
Preferred stock dividends and amortization	362	852	1,085	1,753
Net Income Available to Common Shareholders	$ 1,811	$ 596	$ 4,159	$ 682
Basic earnings per common share	$ 0.26	$ 0.09	$ 0.60	$ 0.10
Diluted earnings per common share	$ 0.26	$ 0.09	$ 0.59	$ 0.10
Dividends per common share	$ 0.06	$ 0.06	$ 0.18	$ 0.18

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Investments

9 Months Ended

Sep. 30, 2012

Investments

Note 4: Investments

The amortized cost and approximate fair values of securities as of September 30, 2012 and December 31, 2011 are as follows.

	September 30, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for Sale Securities
Mortgage-backed securities
Government sponsored agencies	$	179,467	$	7,972	$	-		$	187,439
Collateralized mortgage obligations
Government sponsored agencies		125,153		3,845		(34	)		128,964
Federal agencies		3,000		18		0			3,018
Municipals		3,129		158		(15	)		3,272
Small Business Administration		9		-		-			9
Corporate obligations		24,099		397		(4,335	)		20,161
Total	$	334,857	$	12,390	$	(4,384	)	$	342,863

	December 31, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Available for Sale Securities
Mortgage-backed securities
Government sponsored agencies	$	198,039	$	4,813	$	(6	)	$	202,846
Collateralized mortgage obligations
Government sponsored agencies		97,098		2,963		-			100,061
Federal agencies		2,000		2		-			2,002
Municipals		3,364		208		(14	)		3,558
Small Business Administration		12		-		-			12
Corporate obligations		27,488		-		(5,089	)		22,399
Total	$	328,001	$	7,986	$	(5,109	)	$	330,878

The amortized cost and fair value of available-for-sale securities at September 30, 2012, 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
	Amortized		Fair
Description Securities	Cost		Value
Security obligations due
One to five years	$	17,356	$	17,752
Five to ten years		4,946		4,972
After ten years		7,926		3,727
		30,228		26,451
Mortgage-backed securities		179,467		187,439
Collateralized mortgage obligations		125,153		128,964
Small Business Administration		9		9
Totals	$	334,857	$	342,863

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $2.6 million at September 30, 2012.

Gross gains of $1.6 million and $1.9 million resulting from sales of securities were realized for the nine months ended September 30, 2012 and 2011, respectively. Losses recognized on the sale of securities for the nine months ended September 30, 2012 and 2011 were $0 and $22,000, respectively.  Other-than-temporary impairment losses were recognized on securities for the nine months ended September 30, 2012 and 2011 of $0 and $193,000, respectively.

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, 2012, was $11.3 million, a decrease from $28.5 million at December 31, 2011, which is approximately 3% and 9%, respectively, of the Bank's portfolio.  The Bank has continued to see an improvement since year-end due to increased market values.

Based on evaluation of available evidence, including recent changes in market interest rates, management believes the declines in fair value for these securities, other than those discussed below, 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, 2012 and December 31, 2011:

	September 30, 2012
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Available for Sale
Collateralized mortgage obligations
Government sponsored agencies	$	8,010	$	(34	)	$	-	$	-		$	8,010	$	(34	)
Municipals		876		(15	)		-		-			876		(15	)
Corporate obligations		-		-			2,408		(4,335	)		2,408		(4,335	)
Total temporarily impaired securities	$	8,886	$	(49	)	$	2,408	$	(4,335	)	$	11,294	$	(4,384	)

	December 31, 2011
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
Available for Sale
Mortgage-backed securities
Government sponsored agencies	$	5,076	$	(6	)	$	-	$	-		$	5,076	$	(6	)
Municipals		971		(14	)		-		-			971		(14	)
Corporate obligations		19,957		(790	)		2,454		(4,299	)		22,411		(5,089	)
Total temporarily impaired securities	$	26,004	$	(810	)	$	2,454	$	(4,299	)	$	28,458	$	(5,109	)

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

The unrealized losses on the Company’s investment in MBSs and CMOs were caused by interest rate changes.  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, 2012.

Corporate Obligations

The Company’s unrealized loss on investments in corporate obligations primarily relates to investments in pooled trust preferred securities. The unrealized losses were primarily caused by (a) a decrease in performance and regulatory capital at the underlying banks resulting from exposure to subprime mortgages and (b) a sector downgrade by several industry analysts. The Company currently expects some of the securities to settle at a price less than the amortized cost basis of the investment (that is, the Company expects to recover less than the entire amortized cost basis of the security). The Company has recognized a loss equal to the credit loss for these securities, establishing a new, and 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 investments 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, 2012.

Mutual evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis. During the quarter ended September 30, 2012, the Bank’s evaluation indicated that there was no other-than-temporary impairment of securities. Impairment on securities is determined after analyzing the estimated cash flows to be received, underlying collateral and determining the amount of additional losses needed in the individual pools to create a shortfall in interest or principal payments. All trust preferred securities were valued using a discounted cash flow analysis as of September 30, 2012.

Other-than-temporary Impairment

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

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

The Company routinely conducts reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred.  Economic models are used to determine whether an other-than-temporary impairment has occurred on these securities.  While all securities are considered, the securities primarily impacted by other-than-temporary impairment testing are pooled trust preferred securities.  For each pooled trust preferred security in the investment portfolio (including but not limited to those whose fair value is less than their amortized cost basis), an extensive, regular review is conducted to determine if an other-than-temporary impairment has occurred.  Various inputs to the economic models are used to determine if an unrealized loss is other-than-temporary.

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

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

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

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

· Discounted cash flow modeling.

MutualFirst uses market-based yield indicators as a baseline for determining appropriate discount rates, and then adjusts the resulting discount rates on the basis of its credit and structural analysis of specific trust preferred securities.  The primary focus is on the returns a fixed income investor would require in order to allocate capital on a risk adjusted basis.  There is currently no active market for pooled trust preferred securities; however, the Company looks principally to market yields for stand-alone trust preferred securities issued by banks, thrifts and insurance companies for which there is an active and liquid market.  The next step is to make a series of adjustments to reflect the differences that exist between these products (both credit and structural) and, most importantly, to reflect idiosyncratic credit performance differences (both actual and projected) between these products and the underlying collateral in the specific trust preferred security.  Importantly, as part of the analysis described above, MutualFirst considers the fact that structured instruments frequently exhibit leverage not present in stand-alone instruments, and make adjustments as necessary to reflect this additional risk.

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

Pooled Trust Preferred Securities

At September 30, 2012, MutualFirst had an amortized cost in pooled trust preferred securities of $6.7 million, which had an original par value of $8.0 million.  These securities had a fair value of $2.4 million at September 30, 2012.  The following table provides additional information related to the Bank’s investment in trust preferred securities as of September 30, 2012:

Deal	Class		Original Par		Book Value		Fair Value		Unrealized Loss		Recognized Losses 2012		Lowest Rating	Number of Banks/Insurance Companies Currently Performing		Actual Deferrals/Defaults (as % of original collateral)			Total Projected Defaults (as a % of performing collateral)a			Excess Subordination (after taking into account best estimate of future deferrals/defaults)b
Alesco Preferred Funding IX		A2A	$	1,000	$	902	$	375	$	527	$	-	B2		44		16.64	%		15.38	%		44.11	%
Preferred Term Securities XIII		B1		1,000		823		254		569		-	Ca		40		34.94	%		27.67	%		0.84	%
Preferred Term Securities XVIII		C		1,000		917		210		707		-	Ca		48		29.43	%		16.14	%		1.73	%
Preferred Term Securities XXVII		C1		1,000		710		200		510		-	C		34		26.61	%		22.84	%		6.09	%
U.S. Capital Funding I		B1		3,000		2,891		1,148		1,743		-	Caa1		30		15.90	%		14.84	%		1.55	%
U.S. Capital Funding III		B1		1,000		500		221		279		-	Ca		28		27.94	%		16.86	%		0.00	%
Total			$	8,000	$	6,743	$	2,408	$	4,335	$	-

(a)

A 10% recovery is applied to all projected defaults.  A 15% recovery is applied to all projected insurance defaults.  No recovery is applied to current defaults.

(b)

Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. Excess subordinated percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and expected future default percentages.

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 Three Months Ended September 30,
	2012			2011
Credit losses on debt securities held
Beginning of period	$	(1,205	)	$	(1,205	)
Additions related to increases in previously recognized other-than-temporary losses for the three months ended		-			-
As of September 30,	$	(1,205	)	$	(1,205	)

	Accumulated Credit Losses Nine Months Ended September 30,
	2012			2011
Credit losses on debt securities held
Beginning of year	$	(1,205	)	$	(1,179	)
Additions related to increases in previously recognized other-than-temporary losses for the nine months ended		-			(26	)
As of September 30,	$	(1,205	)	$	(1,205	)

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Impact of Accounting Pronouncements

9 Months Ended

Sep. 30, 2012

Impact of Accounting Pronouncements

Note 3:  Impact of Accounting Pronouncements

The FASB has issued Accounting Standards Update (ASU) No. 2011-04,Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs.

The amendments to the FASB Accounting Standards Codification (Codification) in this ASU are to be applied prospectively. For public entities, the amendments were effective during interim and annual periods beginning after December 15, 2011, and did not have a material impact on the Company’s financial statements.

The FASB has issued Accounting Standards Update (ASU) No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU amendment allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 is to be applied retrospectively. For public entities, the amendments were effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU No. 2011-05 did not have a material impact on the Company’s financial statements.

The FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  This ASU defers the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income for all periods presented. The ASU does not change the other requirements of FASB ASU No. 2011-05, Presentation of Comprehensive Income. Entities are still required to present reclassification adjustments within other comprehensive income either on the face of the statement that reports other comprehensive income or in the notes to the financial statements. The requirement to present comprehensive income in either a single continuous statement or two consecutive condensed statements remains for both annual and interim reporting. The deferral of the requirement for the presentation of reclassification adjustments is intended to be temporary until the FASB reconsiders the operational concerns and needs of financial statement users.

The Company adopted the amendments in this Update at the same time as ASU 2011-05, which became effective beginning in the interim period ended March 31, 2012. As the Company had no reclassifications adjustments within other comprehensive income, ASU No. 2011-12 had no impact on its financial statements.

The FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This ASU amends Topic 210 to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivate instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 2011-11 is effective for annual and interim period beginning on January 1, 2013, and is not expected to have a significant impact on the Corporation’s financial statements.

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Amortized Cost and Fair Values of Securities (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 334,857	$ 328,001
Gross Unrealized Gains	12,390	7,986
Gross Unrealized Loss	(4,384)	(5,109)
Fair Value	342,863	330,878
Mortgage-backed securities, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	179,467	198,039
Gross Unrealized Gains	7,972	4,813
Gross Unrealized Loss		(6)
Fair Value	187,439	202,846
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	125,153	97,098
Gross Unrealized Gains	3,845	2,963
Gross Unrealized Loss	(34)
Fair Value	128,964	100,061
Federal agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	3,000	2,000
Gross Unrealized Gains	18	2
Gross Unrealized Loss	0
Fair Value	3,018	2,002
Municipals
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	3,129	3,364
Gross Unrealized Gains	158	208
Gross Unrealized Loss	(15)	(14)
Fair Value	3,272	3,558
Small Business Administration
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	9	12
Fair Value	9	12
Corporate obligations
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	24,099	27,488
Gross Unrealized Gains	397
Gross Unrealized Loss	(4,335)	(5,089)
Fair Value	$ 20,161	$ 22,399

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Disclosures About Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Measurement of Assets Measured at Fair Value on Recurring Basis

The following table presents the fair value measurement of assets measured at fair value on a recurring basis and the level within the ASC 820 fair value hierarchy used for such fair value measurements:

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2012
Mortgage-backed securities
Government sponsored agencies	$	187,439	$	-	$	187,439	$	-
Collateralized mortgage obligations
Government sponsored agencies		128,964		-		128,964		-
Federal agencies		3,018		-		3,018		-
Municipals		3,272		-		3,272		-
Small Business Administration		9		-		9		-
Corporate obligations		20,161		-		17,753		2,408
Available-for-sale securities	$	342,863	$	-	$	340,455	$	2,408
December 31, 2011
Mortgage-backed securities
Government sponsored agencies	$	202,846	$	-	$	202,846	$	-
Collateralized mortgage obligations
Government sponsored agencies		100,061		-		100,061		-
Federal agencies		2,002		-		2,002		-
Municipals		3,558		-		3,558		-
Small Business Administration		12		-		12		-
Corporate obligations		22,399		-		19,945		2,454
Available-for-sale securities	$	330,878	$	-	$	328,424	$	2,454

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

The following is a reconciliation of the beginning and ending balances for the three months ended September 30, 2012 and 2011 of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	2012		2011
Beginning balance	$	2,264	$	2,958
Total realized and unrealized gains and losses
Included in net income		-		-
Included in other comprehensive loss		144		(418	)
Purchases, issuances and settlements		-		13
Ending balance	$	2,408	$	2,553
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-	$	-

The following is a reconciliation of the beginning and ending balances for the nine months ended September 30, 2012 and 2011 of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	2012			2011
Beginning balance	$	2,454		$	2,645
Total realized and unrealized gains and losses
Included in net income		-			(193	)
Included in other comprehensive loss		(36	)		57
Purchases, issuances and settlements		(10	)		44
Ending balance	$	2,408		$	2,553
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-		$	(193	)

Fair Value Measurement of Assets Measured at Fair Value on Nonrecurring Basis

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

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2012
Impaired loans (collateral dependent)	$	7,235	$	-	$	-	$	7,235
Foreclosed real estate		2,136		-		-		2,136
Mortgage servicing rights		2,109						2,109
December 31, 2011
Impaired loans (collateral dependent)	$	16,511	$	-	$	-	$	16,511
Foreclosed real estate		202		-		-		202
Mortgage-servicing rights		2,626		-		-		2,626

Quantitative Information about Unobservable Inputs used in Recurring and Nonrecurring Level Three Fair Value Measurements

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

	Fair Value at September 30, 2012		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,408	Discounted cash flow	Discount rate Constant prepayment rate Cumulative projected prepayments Probability of default Projected cures given deferral Loss severity		9.0% - 16.0% 2.0%  30.0% 1.5%-2.4% 0%-15.0% 56.7% – 81.4%
Impaired loans (collateral dependent)	$	7,235	Third party valuations	Discount to reflect realizable value		0%-40%
Foreclosed real estate	$	2,136	Third party valuations	Discount to reflect realizable value less estimated selling costs		0%-25%
Mortgage servicing rights	$	2,109	Third party valuations	Prepayment speeds Discount rates Servicing fee		220%-700% 9.0% 0.25%

Estimated Fair Values of Financial Instruments

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

	Carrying				Fair Value Measurements Using
September 30,  2012	Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	44,319	$	44,319	$	44,319	$	-	$	-
Loans held for sale		4,072		4,216		-		4,216		-
Loans		947,375		977,803		-		-		977,803
FHLB stock		14,391		14,391		-		14,391		-
Interest receivable		3,930		3,930		-		3,930		-
Liabilities
Deposits		1,193,031		1,210,969		596,913		-		614,056
FHLB advances		113,194		115,174		-		115,174		-
Other borrowings		11,812		13,006		-		13,006		-
Interest payable		447		447		-		447		-
Advances by borrowers for taxes and insurance		2,675		2,675		-		2,675		-

	December 31, 2011
	Carrying Amount		Fair Value
Assets
Cash and cash equivalents	$	55,223	$	55,223
Interest-bearing deposits		1,415		1,415
Loans held for sale		1,441		1,459
Loans		900,460		921,212
FHLB stock		14,391		14,391
Interest receivable		4,248		4,248
Liabilities
Deposits	$	1,166,637	$	1,132,031
FHLB advances		101,451		103,980
Other borrowings		12,410		13,083
Interest payable		340		340
Advances by borrowers for taxes and insurance		1,720		1,720

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Loans

9 Months Ended

Sep. 30, 2012

Loans

Note 7: Loans

Categories of loans at September 30, 2012 and December 31, 2011 include:

	September 30,			December 31,
	2012			2011
Commercial
Real estate	$	195,465		$	197,390
Construction and development		16,718			20,831
Other		61,876			64,628
		274,059			282,849
Residential Mortgage
One- to four- family		491,012			434,976
Consumer loans
Real estate		98,572			96,864
Auto		15,337			15,203
Boat/RVs		79,175			83,557
Other		6,692			6,760
		199,776			202,384
Total loans		964,847			920,209
Undisbursed loans in process		(4,372	)		(5,352	)
Unamortized deferred loan costs, net		2,436			2,418
Allowance for loan losses		(15,536	)		(16,815	)
Net loans	$	947,375		$	900,460

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

Commercial

Commercial real estate

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

Construction and Development

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

Commercial other

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

Mortgage and Consumer

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

Nonaccrual Loan and Past Due Loans. 

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.  The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.  Past due status is based on contractual terms of the loan.  In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

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

Non-accrual loans, segregated by class of loans, as of September 30, 2012 and December 31, 2011 are as follows:

	September 30,		December 31,
	2012		2011
Commercial
Real Estate	$	2,688	$	7,592
Construction and development		6,301		9,314
Other		1,412		1,160
Residential Mortgage		9,862		10,080
Consumer
Real estate		1,942		2,081
Auto		39		24
Boat/RV		784		371
Other		104		89
	$	23,112	$	30,711

An age analysis of Company’s past due loans, segregated by class of loans, as of September 30, 2012 and December 31, 2011 is as follows:

	September 30, 2012
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
Commercial
Real Estate	$	816	$	161	$	2,508	$	3,485	$	191,980	$	195,465	$	-
Construction and development		563		-		5,805		6,368		10,350		16,718		-
Other		1,167		158		780		2,105		59,771		61,876		-
Residential Mortgage		10,566		3,006		9,345		22,917		468,095		491,012		756
Consumer
Real estate		587		353		1,442		2,382		96,190		98,572		-
Auto		63		4		33		100		15,237		15,337		-
Boat/RV		1,409		735		378		2,522		76,653		79,175		-
Other		155		6		68		229		6,463		6,692		1
	$	15,326	$	4,423	$	20,359	$	40,108	$	924,739	$	964,847	$	757

	December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
Commercial
Real Estate	$	1,173	$	1,439	$	6,569	$	9,181	$	188,209	$	197,390	$	-
Construction  and development		845		3,595		4,850		9,290		11,541		20,831		-
Other		791		99		955		1,845		62,783		64,628		-
Residential Mortgage		13,309		3,427		11,207		27,943		407,033		434,976		1,127
Consumer
Real estate		1,395		1,167		2,081		4,643		92,221		96,864		-
Auto		143		28		24		195		15,008		15,203		-
Boat/RV		2,084		825		371		3,280		80,277		83,557		-
Other		227		5		89		321		6,439		6,760		-
	$	19,967	$	10,585	$	26,146	$	56,698	$	863,511	$	920,209	$	1,127

Impaired Loans.  

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

Loans are individually evaluated for impairment based on internal limits outlined in our lending policies. The current threshold for these evaluations is set at $250,000. Although all troubled debt restructurings are considered impaired loans they are not necessarily individually evaluated for impairment based on the guidelines noted previously.

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

The following tables present impaired loans for the three and nine month periods ended September 30, 2012 and 2011 and the year ended December 31, 2011.

	September 30, 2012
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans - Quarter		Average Investment in Impaired Loans - YTD		Interest Income Recognized - Quarter		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Commercial
Real estate	$	3,570	$	4,122	$	-	$	4,546	$	5,646	$	37	$	147
Construction and development		7,111		9,101		-		7,669		9,092		11		35
Other		1,076		1,076		-		2,098		3,028		5		28
Residential Mortgage		3,960		5,048		-		3,613		4,124		19		58
Loans with a specific valuation allowance
Commercial
Construction and development		1,364		4,337		375		1,364		1,482		18		55
Other		1,178		1,178		357		1,191		1,206		9		35
Residential Mortgage		529		529		37		530		532		18		35
Total
Commercial
Real estate	$	3,570	$	4,122	$	-	$	4,546	$	5,646	$	37	$	147
Construction and development	$	8,475	$	13,438	$	375	$	9,033	$	10,574	$	29	$	90
Other	$	2,254	$	2,254	$	357	$	3,289	$	4,234	$	14	$	63
Residential Mortgage	$	4,489	$	5,577	$	37	$	4,143	$	4,656	$	37	$	93

	December 31, 2011
							Average
			Unpaid				Investment in		Interest
	Recorded		Principal		Specific		Impaired		Income
	Balance		Balance		Allowance		Loans		Recognized
Loans without a specific valuation allowance
Commercial
Real estate	$	4,883	$	5,275	$	-	$	4,221	$	137
Construction and development		5,872		11,801		-		9,451		348
Other		4,030		4,167		-		1,480		211
Residential Mortgage		5,378		6,870		-		5,532		142
Loans with a specific valuation allowance
Commercial
Real estate		2,083		2,489		209		1,086		74
Construction and development		7,071		7,281		1,437		3,775		233
Other		1,470		1,524		543		246		60
Residential Mortgage		537		537		36		67		36
Total
Commercial
Real estate	$	6,966	$	7,764	$	209	$	5,307	$	211
Construction and development	$	12,943	$	19,082	$	1,437	$	13,226	$	581
Other	$	5,500	$	5,691	$	543	$	1,726	$	271
Residential Mortgage	$	5,915	$	7,407	$	36	$	5,599	$	178

	September 30, 2011
	Average Investment in Impaired Loans - Quarter		Average Investment in Impaired Loans - YTD		Interest Income Recognized - Quarter		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Commercial
Real estate	$	3,349	$	4,890	$	4	$	81
Construction and development		9,158		11,776		31		227
Other		1,358		1,972		1		28
Residential Mortgage		4,765		5,866		47		119
Loans with a specific valuation allowance
Commercial
Real estate		1,640		1,648		8		52
Construction and development		3,985		4,122		24		60
Other		125		250		3		7
Residential Mortgage		-		-		-		-
Total
Commercial
Real estate	$	4,989	$	6,538	$	12	$	133
Construction and development	$	13,143	$	15,898	$	55	$	287
Other	$	1,483	$	2,222	$	4	$	35
Residential Mortgage	$	4,765	$	5,866	$	47	$	119

Commercial Loan Grades

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

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

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

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

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

Retail Loan Grades

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

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

Substandard.  Substandard credits are loans that have reason to be considered to have a well defined weakness and placed on non-accrual.  This would include all retail loans over 90 days and troubled debt restructurings which were delinquent at the time of modification.

The following information presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of September 30, 2012 and December 31, 2011.

September 30, 2012
Commercial Credit Exposure Credit Risk Profile
Internal Rating	Real estate		Construction and Development		Other
Pass	$	169,089	$	8,686	$	57,472
Special Mention		15,392		172		300
Substandard		10,984		7,860		3,234
Doubtful		-		-		870
Total	$	195,465	$	16,718	$	61,876

Retail Credit Exposure Credit Risk Profile
	Mortgage		Consumer
	Residential		Real Estate		Auto		Boat/RV		Other
Pass	$	474,440	$	95,994	$	15,287	$	78,012	$	6,595
Special Mention		2,031		-		-		-		-
Substandard		14,541		2,578		50		1,163		97
Total	$	491,012	$	98,572	$	15,337	$	79,175	$	6,692

December 31, 2011
Commercial Credit Exposure Credit Risk Profile
			Construction
			and
Internal Rating	Real estate		Development		Other
Pass	$	167,991	$	8,093	$	56,691
Special Mention		11,940		538		880
Substandard		16,488		12,105		6,260
Doubtful		971		95		797
Total	$	197,390	$	20,831	$	64,628

Retail Credit Exposure Credit Risk Profile
	Mortgage		Consumer
	Residential		Real Estate		Auto		Boat/RV		Other
Pass	$	417,772	$	94,066	$	15,135	$	82,639	$	6,680
Special Mention		2,473		-		-		-		-
Substandard		14,731		2,798		68		918		80
Total	$	434,976	$	96,864	$	15,203	$	83,557	$	6,760

Allowance for Loan Losses.

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

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

The allowance for loan losses is based on estimates of losses inherent in the loan portfolio.  Actual losses can vary significantly from the estimated amounts.  Our methodology as described permits adjustments to any loss factor used in the computation of the general allowance in the event that, in management’s judgment, significant factors which affect the collectability of the portfolio as of the evaluation date are not reflected in the loss factors.  By assessing the probable incurred losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available.  Due to the loss of numerous manufacturing jobs in the communities we serve during recent years and the increase in higher risk loans, like consumer and commercial loans, as a percentage of total loans, management has concluded that our allowance for loan losses should be greater than historical loss experience and specifically identified losses would otherwise indicate.

The following table details activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2012 and 2011 and year ended December 31, 2011.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other segments. 

	Three Months Ended September 30, 2012
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	10,004	$	3,392	$	2,607	$	16,003
Provision charged to expense		985		480		10		1,475
Losses charged off		1,484		505		268		2,257
Recoveries		16		196		103		315
Balance, end of period	$	9,521	$	3,563	$	2,452	$	15,536

	Nine Months Ended September 30, 2012
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	10,602	$	3,444	$	2,769	$	16,815
Provision charged to expense		2,410		1,571		694		4,675
Losses charged off		4,034		1,652		1,354		7,040
Recoveries		543		200		343		1,086
Balance, end of period	$	9,521	$	3,563	$	2,452	$	15,536
Ending balance:
Individually evaluated for impairment	$	732	$	37	$	-	$	769
Collectively evaluated for impairment	$	8,789	$	3,526	$	2,452	$	14,767
Loans:
Ending balance
Individually evaluated for impairment	$	14,299	$	4,489	$	-	$	18,788
Collectively evaluated for impairment	$	259,760	$	486,523	$	199,776	$	946,059

	Year Ended December 31, 2011
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	10,124	$	2,212	$	4,036	$	16,372
Provision charged to expense		8,592		4,390		118		13,100
Losses charged off		8,260		3,432		2,126		13,818
Recoveries		146		274		741		1,161
Balance, end of period	$	10,602	$	3,444	$	2,769	$	16,815
Ending balance:
Individually evaluated for impairment	$	2,189	$	36	$	-	$	2,225
Collectively evaluated for impairment	$	8,413	$	3,408	$	2,769	$	14,590
Loans:
Ending balance
Individually evaluated for impairment	$	25,409	$	5,915	$	-	$	31,324
Collectively evaluated for impairment	$	257,440	$	429,061	$	202,384	$	888,885

	Three Months Ended September 30, 2011
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	9,790	$	2,135	$	4,032	$	15,957
Provision charged to expense		2,915		100		185		3,200
Losses charged off		2,017		464		556		3,037
Recoveries		64		63		234		361
Balance, end of period	$	10,752	$	1,834	$	3,895	$	16,481

	Nine Months Ended September 30, 2011
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	10,124	$	2,212	$	4,036	$	16,372
Provision charged to expense		6,145		2,100		855		9,100
Losses charged off		5,582		2,644		1,647		9,873
Recoveries		65		166		651		882
Balance, end of period	$	10,752	$	1,834	$	3,895	$	16,481

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

For all loan portfolio segments except 1-4 family residential properties and consumer, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

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

Information on non-performing assets, excluding performing restructured loans, is provided below:

	September 30,
	2012		2011
Non-performing assets
Non-accrual loans	$	23,112	$	25,937
Accruing loans 90 days + past due		757		1,103
Total non-performing loans		23,869		27,040
Foreclosed real estate		6,184		5,686
Other repossessed assets		573		1,142
Total non-performing assets	$	30,626	$	33,868

Troubled Debt Restructurings

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

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

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

The following tables provide detail regarding troubled debts restructured in the three and nine month periods ended September 30, 2012 and 2011.

Three Months Ended September 30, 2012
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		1	$	439	$	439
Construction and development		1		172		172
Other		2		46		46
Residential Mortgage		10		719		734
Consumer
Real estate		14		439		438
Auto		2		9		8
Boat/RV		4		96		95
Other		2		36		36

Three Months Ended September 30, 2011
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		1	$	113	$	70
Residential Mortgage		6		463		492
Consumer
Real estate		10		231		231
Auto		1		10		10
Boat/RV		4		134		133

Nine Months Ended September 30, 2012
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		4	$	1,359	$	1,520
Construction and development		1		172		172
Other		5		262		324
Residential Mortgage		28		2,455		2,596
Consumer
Real estate		24		830		830
Auto		3		16		15
Boat/RV		7		154		153
Other		4		53		52

Nine Months Ended September 30, 2011
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		1	$	113	$	70
Construction and development		2		3,728		3,728
Other		1		103		103
Residential Mortgage		22		2,529		2,598
Consumer
Real estate		22		555		551
Auto		1		10		10
Boat/RV		12		364		357
Other		1		14		1

The impact to the allowance for loan losses due to these modifications was insignificant.

Newly restructured loans by types are as follows:

Three Months Ended September 30, 2012
	Interest Only		Term		Combination		Total Modification
Commercial
Real Estate	$	-	$	-	$	439	$	439
Construction and development		-		-		172		172
Other		-		46		-		46
Residential Mortgage		-		36		698		734
Consumer
Real estate		-		22		416		438
Auto		-		4		4		8
Boat/RV		-		95		-		95
Other		-		-		36		36

Nine Months Ended September 30, 2012
	Interest Only		Term		Combination		Total Modification
Commercial
Real Estate	$	-	$	403	$	1,117	$	1,520
Construction and development		-		-		172		172
Other		-		143		181		324
Residential Mortgage		320		169		2,107		2,596
Consumer
Real estate		-		55		775		830
Auto		-		11		4		15
Boat/RV		-		153		-		153
Other		-		8		44		52

The following tables provide detail regarding troubled debts restructured in the last twelve months that have defaulted in the quarter ended September 30, 2012.

Three and Nine Months Ended September 30, 2012
			Post- Modification
			Outstanding
	No. of Loans		Recorded Balance
Commercial
Real Estate		1	$	109
Other		1		518
Residential Mortgage		1		31
Consumer
Other		1		14

We had no defaults of any loans modified as troubled debt restructurings made for the three and nine months ended September 30, 2011. Default is defined as any loan that becomes more than 90 days past due.

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Accumulated Other Comprehensive Income

9 Months Ended

Sep. 30, 2012

Accumulated Other Comprehensive Income

Note 5: Accumulated Other Comprehensive Income

The following table represents the components of accumulated other comprehensive income:

	September 30,			December 31,
	2012			2011
Net unrealized gain on securities available-for-sale	$	11,815		$	6,666
Net unrealized loss on securities available-for-sale for which a portion of other-than-temporary impairment has been recognized in income		(3,808	)		(3,788	)
Net unrealized loss on derivative used for cash flow hedges		(456	)		(472	)
Net unrealized loss relating to defined benefit plan liability		(448	)		(448	)
		7,103			1,958
Tax expense		2,540			755
Net-of-tax amount	$	4,563		$	1,203

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Disclosures About Fair Value of Assets and Liabilities

9 Months Ended

Sep. 30, 2012

Disclosures About Fair Value of Assets and Liabilities

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
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 sheets, 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.  Level 1 securities include the marketable equity securities.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.  Level 2 securities include mortgage-backed, collateralized mortgage obligations, small business administration, marketable equity, municipal, federal agency and certain corporate obligation securities.  In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain corporate obligation securities.

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

Fair value determinations for Level 3 measurements of securities are the responsibility of the Treasury function of the Company.  The Company contracts with a pricing specialist to generate fair value estimates on a monthly basis.  The Treasury function of the Company challenges the reasonableness of the assumptions used and reviews the methodology to ensure the estimated fair value complies with accounting standards generally accepted in the United States, analyzes the changes in fair value and compares these changes to internally developed expectations and monitors these changes for appropriateness.

The following table presents the fair value measurement of assets measured at fair value on a recurring basis and the level within the ASC 820 fair value hierarchy used for such fair value measurements:

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2012
Mortgage-backed securities
Government sponsored agencies	$	187,439	$	-	$	187,439	$	-
Collateralized mortgage obligations
Government sponsored agencies		128,964		-		128,964		-
Federal agencies		3,018		-		3,018		-
Municipals		3,272		-		3,272		-
Small Business Administration		9		-		9		-
Corporate obligations		20,161		-		17,753		2,408
Available-for-sale securities	$	342,863	$	-	$	340,455	$	2,408
December 31, 2011
Mortgage-backed securities
Government sponsored agencies	$	202,846	$	-	$	202,846	$	-
Collateralized mortgage obligations
Government sponsored agencies		100,061		-		100,061		-
Federal agencies		2,002		-		2,002		-
Municipals		3,558		-		3,558		-
Small Business Administration		12		-		12		-
Corporate obligations		22,399		-		19,945		2,454
Available-for-sale securities	$	330,878	$	-	$	328,424	$	2,454

The following is a reconciliation of the beginning and ending balances for the three months ended September 30, 2012 and 2011 of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	2012		2011
Beginning balance	$	2,264	$	2,958
Total realized and unrealized gains and losses
Included in net income		-		-
Included in other comprehensive loss		144		(418	)
Purchases, issuances and settlements		-		13
Ending balance	$	2,408	$	2,553
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-	$	-

The following is a reconciliation of the beginning and ending balances for the nine months ended September 30, 2012 and 2011 of recurring fair value measurements recognized in the accompanying balance sheet using significant unobservable (Level 3) inputs:

	2012			2011
Beginning balance	$	2,454		$	2,645
Total realized and unrealized gains and losses
Included in net income		-			(193	)
Included in other comprehensive loss		(36	)		57
Purchases, issuances and settlements		(10	)		44
Ending balance	$	2,408		$	2,553
Total gains or losses for the period included in net income attributable to the change in unrealized gains or losses related to assets still held at the reporting date	$	-		$	(193	)

Items Measured at Fair Value on a Non-Recurring Basis

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

Impaired Loans (Collateral Dependent)

Loans for which it is probable that Mutual will not collect all principal and interest due according to contractual terms are measured for impairment.  Allowable methods for determining the amount of impairment include estimating fair value include using the fair value of the collateral for collateral dependent loans.

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

Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method. 

Other Real Estate Owned

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

The estimated fair value of other real estate owned is based on current appraisal, less discount to reflect realizable value and estimated cost to sell.  Other real estate owned is classified within Level 3 of the fair value hierarchy.  Appraisals of other real estate owned are obtained when the real estate is acquired and subsequently as deemed necessary by the asset classification committee.  The Risk Management division reviews the appraisals for accuracy and consistency.  Appraisals are selected from the list of approved appraisers maintained by the Board.  The reductions in fair value of other real estate owned were $456,000 and $276,000 for the nine months ended September 30, 2012 and 2011, respectively. The changes were recorded as adjustments to current earnings through other real estate owned related expenses.

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 measured at fair value on a nonrecurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall:

			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
September 30, 2012
Impaired loans (collateral dependent)	$	7,235	$	-	$	-	$	7,235
Foreclosed real estate		2,136		-		-		2,136
Mortgage servicing rights		2,109						2,109
December 31, 2011
Impaired loans (collateral dependent)	$	16,511	$	-	$	-	$	16,511
Foreclosed real estate		202		-		-		202
Mortgage-servicing rights		2,626		-		-		2,626

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

	Fair Value at September 30, 2012		Valuation Technique	Unobservable Inputs	Range
Trust Preferred Securities	$	2,408	Discounted cash flow	Discount rate Constant prepayment rate Cumulative projected prepayments Probability of default Projected cures given deferral Loss severity		9.0% - 16.0% 2.0%  30.0% 1.5%-2.4% 0%-15.0% 56.7% – 81.4%
Impaired loans (collateral dependent)	$	7,235	Third party valuations	Discount to reflect realizable value		0%-40%
Foreclosed real estate	$	2,136	Third party valuations	Discount to reflect realizable value less estimated selling costs		0%-25%
Mortgage servicing rights	$	2,109	Third party valuations	Prepayment speeds Discount rates Servicing fee		220%-700% 9.0% 0.25%

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

	Carrying				Fair Value Measurements Using
September 30,  2012	Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	44,319	$	44,319	$	44,319	$	-	$	-
Loans held for sale		4,072		4,216		-		4,216		-
Loans		947,375		977,803		-		-		977,803
FHLB stock		14,391		14,391		-		14,391		-
Interest receivable		3,930		3,930		-		3,930		-
Liabilities
Deposits		1,193,031		1,210,969		596,913		-		614,056
FHLB advances		113,194		115,174		-		115,174		-
Other borrowings		11,812		13,006		-		13,006		-
Interest payable		447		447		-		447		-
Advances by borrowers for taxes and insurance		2,675		2,675		-		2,675		-

	December 31, 2011
	Carrying Amount		Fair Value
Assets
Cash and cash equivalents	$	55,223	$	55,223
Interest-bearing deposits		1,415		1,415
Loans held for sale		1,441		1,459
Loans		900,460		921,212
FHLB stock		14,391		14,391
Interest receivable		4,248		4,248
Liabilities
Deposits	$	1,166,637	$	1,132,031
FHLB advances		101,451		103,980
Other borrowings		12,410		13,083
Interest payable		340		340
Advances by borrowers for taxes and insurance		1,720		1,720

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.

Loans Held For Sale - Fair values are based on current investor purchase commitments.

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

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

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

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

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 fair value of commitments is immaterial.

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Earnings per share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share

Earnings per share were computed as follows:

	Three Months Ended September 30,
	2012							2011
				Weighted-							Weighted-
	Net			Average		Per-Share		Net			Average		Per-Share
	Income			Shares		Amount		Income			Shares		Amount
Basic Earnings Per Share
Net income	$	2,173			6,992,831			$	1,448			6,911,597
Dividends and accretion on preferred stock		(362	)						(852	)
Income available to common stockholders		1,811			6,992,831	$	0.26		596			6,911,597	$	0.09
Effect of Dilutive securities
Stock options and RRP grants					82,065							15,836
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	1,811			7,074,896	$	0.26	$	596			6,927,433	$	0.09

	Nine Months Ended September 30,
	2012							2011
				Weighted-							Weighted-
	Net			Average		Per-Share		Net			Average		Per-Share
	Income			Shares		Amount		Income			Shares		Amount
Basic Earnings Per Share
Net income	$	5,244			6,937,229			$	2,435			6,902,676
Dividends and accretion on preferred stock		(1,085	)						(1,753	)
Income available to common stockholders		4,159			6,937,229	$	0.60		682			6,902,676	$	0.10
Effect of Dilutive securities
Stock options and RRP grants					94,803							89,753
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	4,159			7,032,032	$	0.59	$	682			6,992,429	$	0.10

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Fair Value Measurement of Assets Measured at Fair Value on Nonrecurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Impaired loans (collateral dependent)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on non recurring basis	$ 7,235	$ 16,511
Foreclosed real estate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on non recurring basis	2,136	202
Mortgage servicing rights
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on non recurring basis	2,109	2,626
Fair Value, Inputs, Level 3 | Impaired loans (collateral dependent)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on non recurring basis	7,235	16,511
Fair Value, Inputs, Level 3 | Foreclosed real estate
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on non recurring basis	2,136	202
Fair Value, Inputs, Level 3 | Mortgage servicing rights
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets on non recurring basis	$ 2,109	$ 2,626

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Earning Per Share (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Basic Earnings Per Share
Net income	$ 2,173	$ 1,448	$ 5,244	$ 2,435
Dividends and accretion on preferred stock	(362)	(852)	(1,085)	(1,753)
Income available to common stockholders	1,811	596	4,159	682
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$ 1,811	$ 596	$ 4,159	$ 682
Weighted-Average Shares, basic	6,992,831	6,911,597	6,937,229	6,902,676
Weighted-Average Shares, adjustment	82,065	15,836	94,803	89,753
Weighted-Average Shares, diluted	7,074,896	6,927,433	7,032,032	6,992,429
Earnings per share, basic	$ 0.26	$ 0.09	$ 0.60	$ 0.10
Earnings per share, diluted	$ 0.26	$ 0.09	$ 0.59	$ 0.10

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Investments Gross Unrealized Losses and Fair Value, Aggregated by Investment Category and Length of Time, in Continuous Unrealized Loss Position (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Total, Fair Value	$ 11,294	$ 28,458
Collateralized mortgage obligations, Government sponsored agencies
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	8,010	5,076
Less than 12 months, Unrealized Losses	(34)	(6)
Total, Fair Value	8,010	5,076
Total, Unrealized Losses	(34)	(6)
Municipals
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	876	971
Less than 12 months, Unrealized Losses	(15)	(14)
Total, Fair Value	876	971
Total, Unrealized Losses	(15)	(14)
Corporate obligations
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value		19,957
Less than 12 months, Unrealized Losses		(790)
12 months or more, Fair Value	2,408	2,454
12 months or more, Unrealized Losses	(4,335)	(4,299)
Total, Fair Value	2,408	22,411
Total, Unrealized Losses	(4,335)	(5,089)
Total temporarily impaired securities
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months, Fair Value	8,886	26,004
Less than 12 months, Unrealized Losses	(49)	(810)
12 months or more, Fair Value	2,408	2,454
12 months or more, Unrealized Losses	(4,335)	(4,299)
Total, Fair Value	11,294	28,458
Total, Unrealized Losses	$ (4,384)	$ (5,109)

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Impaired Loans (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Commercial | Real estate
Financing Receivable, Impaired [Line Items]
Recorded Balance	$ 3,570		$ 3,570		$ 6,966
Unpaid Principal Balance	4,122		4,122		7,764
Specific Allowance					209
Average Investment in Impaired Loans					5,307
Average Investment in Impaired Loans	4,546	4,989	5,646	6,538
Interest Income Recognized	37	12	147	133	211
Commercial | Construction and development
Financing Receivable, Impaired [Line Items]
Recorded Balance	8,475		8,475		12,943
Unpaid Principal Balance	13,438		13,438		19,082
Specific Allowance	375		375		1,437
Average Investment in Impaired Loans					13,226
Average Investment in Impaired Loans	9,033	13,143	10,574	15,898
Interest Income Recognized	29	55	90	287	581
Commercial | Other
Financing Receivable, Impaired [Line Items]
Recorded Balance	2,254		2,254		5,500
Unpaid Principal Balance	2,254		2,254		5,691
Specific Allowance	357		357		543
Average Investment in Impaired Loans					1,726
Average Investment in Impaired Loans	3,289	1,483	4,234	2,222
Interest Income Recognized	14	4	63	35	271
Residential Mortgage
Financing Receivable, Impaired [Line Items]
Recorded Balance	4,489		4,489		5,915
Unpaid Principal Balance	5,577		5,577		7,407
Specific Allowance	37		37		36
Average Investment in Impaired Loans					5,599
Average Investment in Impaired Loans	4,143	4,765	4,656	5,866
Interest Income Recognized	37	47	93	119	178
Loans without a specific valuation allowance | Commercial | Real estate
Financing Receivable, Impaired [Line Items]
Recorded Balance	3,570		3,570		4,883
Unpaid Principal Balance	4,122		4,122		5,275
Average Investment in Impaired Loans					4,221
Average Investment in Impaired Loans	4,546	3,349	5,646	4,890
Interest Income Recognized	37	4	147	81	137
Loans without a specific valuation allowance | Commercial | Construction and development
Financing Receivable, Impaired [Line Items]
Recorded Balance	7,111		7,111		5,872
Unpaid Principal Balance	9,101		9,101		11,801
Average Investment in Impaired Loans					9,451
Average Investment in Impaired Loans	7,669	9,158	9,092	11,776
Interest Income Recognized	11	31	35	227	348
Loans without a specific valuation allowance | Commercial | Other
Financing Receivable, Impaired [Line Items]
Recorded Balance	1,076		1,076		4,030
Unpaid Principal Balance	1,076		1,076		4,167
Average Investment in Impaired Loans					1,480
Average Investment in Impaired Loans	2,098	1,358	3,028	1,972
Interest Income Recognized	5	1	28	28	211
Loans without a specific valuation allowance | Residential Mortgage
Financing Receivable, Impaired [Line Items]
Recorded Balance	3,960		3,960		5,378
Unpaid Principal Balance	5,048		5,048		6,870
Average Investment in Impaired Loans					5,532
Average Investment in Impaired Loans	3,613	4,765	4,124	5,866
Interest Income Recognized	19	47	58	119	142
Loans with a specific valuation allowance | Commercial | Real estate
Financing Receivable, Impaired [Line Items]
Recorded Balance					2,083
Unpaid Principal Balance					2,489
Specific Allowance					209
Average Investment in Impaired Loans					1,086
Average Investment in Impaired Loans		1,640		1,648
Interest Income Recognized		8		52	74
Loans with a specific valuation allowance | Commercial | Construction and development
Financing Receivable, Impaired [Line Items]
Recorded Balance	1,364		1,364		7,071
Unpaid Principal Balance	4,337		4,337		7,281
Specific Allowance	375		375		1,437
Average Investment in Impaired Loans					3,775
Average Investment in Impaired Loans	1,364	3,985	1,482	4,122
Interest Income Recognized	18	24	55	60	233
Loans with a specific valuation allowance | Commercial | Other
Financing Receivable, Impaired [Line Items]
Recorded Balance	1,178		1,178		1,470
Unpaid Principal Balance	1,178		1,178		1,524
Specific Allowance	357		357		543
Average Investment in Impaired Loans					246
Average Investment in Impaired Loans	1,191	125	1,206	250
Interest Income Recognized	9	3	35	7	60
Loans with a specific valuation allowance | Residential Mortgage
Financing Receivable, Impaired [Line Items]
Recorded Balance	529		529		537
Unpaid Principal Balance	529		529		537
Specific Allowance	37		37		36
Average Investment in Impaired Loans					67
Average Investment in Impaired Loans	530		532
Interest Income Recognized	$ 18		$ 35		$ 36

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Consolidated Condensed Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income	$ 2,173	$ 1,448	$ 5,244	$ 2,435
Other comprehensive income:
Net unrealized holding gain on securities available-for-sale	2,643	3,802	6,724	11,724
Net unrealized gain (loss) on securities available-for-sale for which a portion of an other-than-temporary impairment has been recognized in income	132	(418)	(20)	(136)
Less: Reclassification adjustment for realized gains included in net income	(1,095)	(1,764)	(1,575)	(1,646)
Net unrealized gain (loss) on derivative used for cash flow hedges	2	(119)	16	(162)
Income taxes related to other comprehensive income	(578)	(528)	(1,785)	(3,448)
Other comprehensive income	1,104	973	3,360	6,332
Comprehensive income	$ 3,277	$ 2,421	$ 8,604	$ 8,767

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Earnings per share

9 Months Ended

Sep. 30, 2012

Earnings per share

Note 2: Earnings per share

Earnings per share were computed as follows:

	Three Months Ended September 30,
	2012							2011
				Weighted-							Weighted-
	Net			Average		Per-Share		Net			Average		Per-Share
	Income			Shares		Amount		Income			Shares		Amount
Basic Earnings Per Share
Net income	$	2,173			6,992,831			$	1,448			6,911,597
Dividends and accretion on preferred stock		(362	)						(852	)
Income available to common stockholders		1,811			6,992,831	$	0.26		596			6,911,597	$	0.09
Effect of Dilutive securities
Stock options and RRP grants					82,065							15,836
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	1,811			7,074,896	$	0.26	$	596			6,927,433	$	0.09

	Nine Months Ended September 30,
	2012							2011
				Weighted-							Weighted-
	Net			Average		Per-Share		Net			Average		Per-Share
	Income			Shares		Amount		Income			Shares		Amount
Basic Earnings Per Share
Net income	$	5,244			6,937,229			$	2,435			6,902,676
Dividends and accretion on preferred stock		(1,085	)						(1,753	)
Income available to common stockholders		4,159			6,937,229	$	0.60		682			6,902,676	$	0.10
Effect of Dilutive securities
Stock options and RRP grants					94,803							89,753
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	4,159			7,032,032	$	0.59	$	682			6,992,429	$	0.10

Options to purchase 250,681 and 499,637 shares of common stock were outstanding at September 30, 2012 and 2011 for the three and nine months ended, respectively, but were not included in the computation of diluted EPS above, because the average exercise price of the options was greater than the average market price of the common shares.

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Bank's Investment in Trust Preferred Securities (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011	Dec. 31, 2011
Investment Holdings [Line Items]
Book Value	$ 334,857,000			$ 328,001,000
Fair Value	342,863,000			330,878,000
Recognized Losses	0		22,000
Pooled Trust Preferred Securities
Investment Holdings [Line Items]
Original Par	8,000,000
Book Value	6,743,000
Fair Value	2,408,000
Unrealized Loss	4,335,000
Recognized Losses
Pooled Trust Preferred Securities | Alesco Preferred Funding IX
Investment Holdings [Line Items]
Class	A2A
Original Par	1,000,000
Book Value	902,000
Fair Value	375,000
Unrealized Loss	527,000
Recognized Losses
Lowest Rating	B2
Number of Banks/Insurance Companies Currently Performing	44
Actual Deferrals/Defaults (as % of original collateral)	16.64%
Total Projected Defaults (as % of performing collateral)	15.38%	[1]
Excess Subordination (after taking into account best estimate of future deferrals/defaults	44.11%	[2]
Pooled Trust Preferred Securities | Preferred Term Securities XIII
Investment Holdings [Line Items]
Class	B1
Original Par	1,000,000
Book Value	823,000
Fair Value	254,000
Unrealized Loss	569,000
Recognized Losses
Lowest Rating	Ca
Number of Banks/Insurance Companies Currently Performing	40
Actual Deferrals/Defaults (as % of original collateral)	34.94%
Total Projected Defaults (as % of performing collateral)	27.67%	[1]
Excess Subordination (after taking into account best estimate of future deferrals/defaults	0.84%	[2]
Pooled Trust Preferred Securities | Preferred Term Securities XVIII
Investment Holdings [Line Items]
Class	C
Original Par	1,000,000
Book Value	917,000
Fair Value	210,000
Unrealized Loss	707,000
Recognized Losses
Lowest Rating	Ca
Number of Banks/Insurance Companies Currently Performing	48
Actual Deferrals/Defaults (as % of original collateral)	29.43%
Total Projected Defaults (as % of performing collateral)	16.14%	[1]
Excess Subordination (after taking into account best estimate of future deferrals/defaults	1.73%	[2]
Pooled Trust Preferred Securities | Preferred Term Securities XXVII
Investment Holdings [Line Items]
Class	C1
Original Par	1,000,000
Book Value	710,000
Fair Value	200,000
Unrealized Loss	510,000
Recognized Losses
Lowest Rating	C
Number of Banks/Insurance Companies Currently Performing	34
Actual Deferrals/Defaults (as % of original collateral)	26.61%
Total Projected Defaults (as % of performing collateral)	22.84%	[1]
Excess Subordination (after taking into account best estimate of future deferrals/defaults	6.09%	[2]
Pooled Trust Preferred Securities | U.S. Capital Funding I
Investment Holdings [Line Items]
Class	B1
Original Par	3,000,000
Book Value	2,891,000
Fair Value	1,148,000
Unrealized Loss	1,743,000
Recognized Losses
Lowest Rating	Caa1
Number of Banks/Insurance Companies Currently Performing	30
Actual Deferrals/Defaults (as % of original collateral)	15.90%
Total Projected Defaults (as % of performing collateral)	14.84%	[1]
Excess Subordination (after taking into account best estimate of future deferrals/defaults	1.55%	[2]
Pooled Trust Preferred Securities | U.S. Capital Funding III
Investment Holdings [Line Items]
Class	B1
Original Par	1,000,000
Book Value	500,000
Fair Value	221,000
Unrealized Loss	279,000
Recognized Losses
Lowest Rating	Ca
Number of Banks/Insurance Companies Currently Performing	28
Actual Deferrals/Defaults (as % of original collateral)	27.94%
Total Projected Defaults (as % of performing collateral)	16.86%	[1]
Excess Subordination (after taking into account best estimate of future deferrals/defaults	0.00%	[2]

[1] A 10% recovery is applied to all projected defaults. A 15% recovery is applied to all projected insurance defaults. No recovery is applied to current defaults.

[2] Excess subordination represents the additional defaults in excess of both current and projected defaults that the CDO can absorb before the bond experiences any credit impairment. Excess subordinated percentage is calculated by (a) determining what percentage of defaults a deal can experience before the bond has credit impairment, and (b) subtracting from this default breakage percentage both total current and expected future default percentages.

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Non-Accrual Loans Segregated by Class of Loans (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 964,847	$ 920,209
Commercial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	274,059	282,849
Commercial | Real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	195,465	197,390
Commercial | Construction and development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	16,718	20,831
Commercial | Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	61,876	64,628
Residential Mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	491,012	434,976
Consumer loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	199,776	202,384
Consumer loans | Real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	98,572	96,864
Consumer loans | Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	6,692	6,760
Consumer loans | Auto
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	15,337	15,203
Consumer loans | Boat/RV
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	79,175	83,557
Non-accrual loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	23,112	30,711
Non-accrual loans | Commercial | Real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	2,688	7,592
Non-accrual loans | Commercial | Construction and development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	6,301	9,314
Non-accrual loans | Commercial | Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,412	1,160
Non-accrual loans | Residential Mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	9,862	10,080
Non-accrual loans | Consumer loans | Real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,942	2,081
Non-accrual loans | Consumer loans | Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	104	89
Non-accrual loans | Consumer loans | Auto
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	39	24
Non-accrual loans | Consumer loans | Boat/RV
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 784	$ 371

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Loans (Tables)

9 Months Ended

Sep. 30, 2012

Categories of Loans

Categories of loans at September 30, 2012 and December 31, 2011 include:

	September 30,			December 31,
	2012			2011
Commercial
Real estate	$	195,465		$	197,390
Construction and development		16,718			20,831
Other		61,876			64,628
		274,059			282,849
Residential Mortgage
One- to four- family		491,012			434,976
Consumer loans
Real estate		98,572			96,864
Auto		15,337			15,203
Boat/RVs		79,175			83,557
Other		6,692			6,760
		199,776			202,384
Total loans		964,847			920,209
Undisbursed loans in process		(4,372	)		(5,352	)
Unamortized deferred loan costs, net		2,436			2,418
Allowance for loan losses		(15,536	)		(16,815	)
Net loans	$	947,375		$	900,460

Non-Accrual Loans Segregated by Class of Loans

Non-accrual loans, segregated by class of loans, as of September 30, 2012 and December 31, 2011 are as follows:

	September 30,		December 31,
	2012		2011
Commercial
Real Estate	$	2,688	$	7,592
Construction and development		6,301		9,314
Other		1,412		1,160
Residential Mortgage		9,862		10,080
Consumer
Real estate		1,942		2,081
Auto		39		24
Boat/RV		784		371
Other		104		89
	$	23,112	$	30,711

Age Analysis of Past Due Loans Segregated by Class of Loans

An age analysis of Company’s past due loans, segregated by class of loans, as of September 30, 2012 and December 31, 2011 is as follows:

	September 30, 2012
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
Commercial
Real Estate	$	816	$	161	$	2,508	$	3,485	$	191,980	$	195,465	$	-
Construction and development		563		-		5,805		6,368		10,350		16,718		-
Other		1,167		158		780		2,105		59,771		61,876		-
Residential Mortgage		10,566		3,006		9,345		22,917		468,095		491,012		756
Consumer
Real estate		587		353		1,442		2,382		96,190		98,572		-
Auto		63		4		33		100		15,237		15,337		-
Boat/RV		1,409		735		378		2,522		76,653		79,175		-
Other		155		6		68		229		6,463		6,692		1
	$	15,326	$	4,423	$	20,359	$	40,108	$	924,739	$	964,847	$	757

	December 31, 2011
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
Commercial
Real Estate	$	1,173	$	1,439	$	6,569	$	9,181	$	188,209	$	197,390	$	-
Construction  and development		845		3,595		4,850		9,290		11,541		20,831		-
Other		791		99		955		1,845		62,783		64,628		-
Residential Mortgage		13,309		3,427		11,207		27,943		407,033		434,976		1,127
Consumer
Real estate		1,395		1,167		2,081		4,643		92,221		96,864		-
Auto		143		28		24		195		15,008		15,203		-
Boat/RV		2,084		825		371		3,280		80,277		83,557		-
Other		227		5		89		321		6,439		6,760		-
	$	19,967	$	10,585	$	26,146	$	56,698	$	863,511	$	920,209	$	1,127

Impaired Loans

The following tables present impaired loans for the three and nine month periods ended September 30, 2012 and 2011 and the year ended December 31, 2011.

	September 30, 2012
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans - Quarter		Average Investment in Impaired Loans - YTD		Interest Income Recognized - Quarter		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Commercial
Real estate	$	3,570	$	4,122	$	-	$	4,546	$	5,646	$	37	$	147
Construction and development		7,111		9,101		-		7,669		9,092		11		35
Other		1,076		1,076		-		2,098		3,028		5		28
Residential Mortgage		3,960		5,048		-		3,613		4,124		19		58
Loans with a specific valuation allowance
Commercial
Construction and development		1,364		4,337		375		1,364		1,482		18		55
Other		1,178		1,178		357		1,191		1,206		9		35
Residential Mortgage		529		529		37		530		532		18		35
Total
Commercial
Real estate	$	3,570	$	4,122	$	-	$	4,546	$	5,646	$	37	$	147
Construction and development	$	8,475	$	13,438	$	375	$	9,033	$	10,574	$	29	$	90
Other	$	2,254	$	2,254	$	357	$	3,289	$	4,234	$	14	$	63
Residential Mortgage	$	4,489	$	5,577	$	37	$	4,143	$	4,656	$	37	$	93

	December 31, 2011
							Average
			Unpaid				Investment in		Interest
	Recorded		Principal		Specific		Impaired		Income
	Balance		Balance		Allowance		Loans		Recognized
Loans without a specific valuation allowance
Commercial
Real estate	$	4,883	$	5,275	$	-	$	4,221	$	137
Construction and development		5,872		11,801		-		9,451		348
Other		4,030		4,167		-		1,480		211
Residential Mortgage		5,378		6,870		-		5,532		142
Loans with a specific valuation allowance
Commercial
Real estate		2,083		2,489		209		1,086		74
Construction and development		7,071		7,281		1,437		3,775		233
Other		1,470		1,524		543		246		60
Residential Mortgage		537		537		36		67		36
Total
Commercial
Real estate	$	6,966	$	7,764	$	209	$	5,307	$	211
Construction and development	$	12,943	$	19,082	$	1,437	$	13,226	$	581
Other	$	5,500	$	5,691	$	543	$	1,726	$	271
Residential Mortgage	$	5,915	$	7,407	$	36	$	5,599	$	178

	September 30, 2011
	Average Investment in Impaired Loans - Quarter		Average Investment in Impaired Loans - YTD		Interest Income Recognized - Quarter		Interest Income Recognized - YTD
Loans without a specific valuation allowance
Commercial
Real estate	$	3,349	$	4,890	$	4	$	81
Construction and development		9,158		11,776		31		227
Other		1,358		1,972		1		28
Residential Mortgage		4,765		5,866		47		119
Loans with a specific valuation allowance
Commercial
Real estate		1,640		1,648		8		52
Construction and development		3,985		4,122		24		60
Other		125		250		3		7
Residential Mortgage		-		-		-		-
Total
Commercial
Real estate	$	4,989	$	6,538	$	12	$	133
Construction and development	$	13,143	$	15,898	$	55	$	287
Other	$	1,483	$	2,222	$	4	$	35
Residential Mortgage	$	4,765	$	5,866	$	47	$	119

Commercial and Retail Credit Exposure Credit Risk Profile by Internal Rating

The following information presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of September 30, 2012 and December 31, 2011.

September 30, 2012
Commercial Credit Exposure Credit Risk Profile
Internal Rating	Real estate		Construction and Development		Other
Pass	$	169,089	$	8,686	$	57,472
Special Mention		15,392		172		300
Substandard		10,984		7,860		3,234
Doubtful		-		-		870
Total	$	195,465	$	16,718	$	61,876

Retail Credit Exposure Credit Risk Profile
	Mortgage		Consumer
	Residential		Real Estate		Auto		Boat/RV		Other
Pass	$	474,440	$	95,994	$	15,287	$	78,012	$	6,595
Special Mention		2,031		-		-		-		-
Substandard		14,541		2,578		50		1,163		97
Total	$	491,012	$	98,572	$	15,337	$	79,175	$	6,692

December 31, 2011
Commercial Credit Exposure Credit Risk Profile
			Construction
			and
Internal Rating	Real estate		Development		Other
Pass	$	167,991	$	8,093	$	56,691
Special Mention		11,940		538		880
Substandard		16,488		12,105		6,260
Doubtful		971		95		797
Total	$	197,390	$	20,831	$	64,628

Retail Credit Exposure Credit Risk Profile
	Mortgage		Consumer
	Residential		Real Estate		Auto		Boat/RV		Other
Pass	$	417,772	$	94,066	$	15,135	$	82,639	$	6,680
Special Mention		2,473		-		-		-		-
Substandard		14,731		2,798		68		918		80
Total	$	434,976	$	96,864	$	15,203	$	83,557	$	6,760

Activity in Allowance for Loan Losses by Portfolio Segment

The following table details activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2012 and 2011 and year ended December 31, 2011.  Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other segments. 

	Three Months Ended September 30, 2012
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of period	$	10,004	$	3,392	$	2,607	$	16,003
Provision charged to expense		985		480		10		1,475
Losses charged off		1,484		505		268		2,257
Recoveries		16		196		103		315
Balance, end of period	$	9,521	$	3,563	$	2,452	$	15,536

	Nine Months Ended September 30, 2012
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	10,602	$	3,444	$	2,769	$	16,815
Provision charged to expense		2,410		1,571		694		4,675
Losses charged off		4,034		1,652		1,354		7,040
Recoveries		543		200		343		1,086
Balance, end of period	$	9,521	$	3,563	$	2,452	$	15,536
Ending balance:
Individually evaluated for impairment	$	732	$	37	$	-	$	769
Collectively evaluated for impairment	$	8,789	$	3,526	$	2,452	$	14,767
Loans:
Ending balance
Individually evaluated for impairment	$	14,299	$	4,489	$	-	$	18,788
Collectively evaluated for impairment	$	259,760	$	486,523	$	199,776	$	946,059

	Year Ended December 31, 2011
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	10,124	$	2,212	$	4,036	$	16,372
Provision charged to expense		8,592		4,390		118		13,100
Losses charged off		8,260		3,432		2,126		13,818
Recoveries		146		274		741		1,161
Balance, end of period	$	10,602	$	3,444	$	2,769	$	16,815
Ending balance:
Individually evaluated for impairment	$	2,189	$	36	$	-	$	2,225
Collectively evaluated for impairment	$	8,413	$	3,408	$	2,769	$	14,590
Loans:
Ending balance
Individually evaluated for impairment	$	25,409	$	5,915	$	-	$	31,324
Collectively evaluated for impairment	$	257,440	$	429,061	$	202,384	$	888,885

	Three Months Ended September 30, 2011
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	9,790	$	2,135	$	4,032	$	15,957
Provision charged to expense		2,915		100		185		3,200
Losses charged off		2,017		464		556		3,037
Recoveries		64		63		234		361
Balance, end of period	$	10,752	$	1,834	$	3,895	$	16,481

	Nine Months Ended September 30, 2011
	Commercial		Mortgage		Consumer		Total
Allowance for loan losses:
Balance, beginning of year	$	10,124	$	2,212	$	4,036	$	16,372
Provision charged to expense		6,145		2,100		855		9,100
Losses charged off		5,582		2,644		1,647		9,873
Recoveries		65		166		651		882
Balance, end of period	$	10,752	$	1,834	$	3,895	$	16,481

Non-Performing Assets excluding Restructured Loans

Information on non-performing assets, excluding performing restructured loans, is provided below:

	September 30,
	2012		2011
Non-performing assets
Non-accrual loans	$	23,112	$	25,937
Accruing loans 90 days + past due		757		1,103
Total non-performing loans		23,869		27,040
Foreclosed real estate		6,184		5,686
Other repossessed assets		573		1,142
Total non-performing assets	$	30,626	$	33,868

Troubled Debts Restructured

The following tables provide detail regarding troubled debts restructured in the three and nine month periods ended September 30, 2012 and 2011.

Three Months Ended September 30, 2012
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		1	$	439	$	439
Construction and development		1		172		172
Other		2		46		46
Residential Mortgage		10		719		734
Consumer
Real estate		14		439		438
Auto		2		9		8
Boat/RV		4		96		95
Other		2		36		36

Three Months Ended September 30, 2011
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		1	$	113	$	70
Residential Mortgage		6		463		492
Consumer
Real estate		10		231		231
Auto		1		10		10
Boat/RV		4		134		133

Nine Months Ended September 30, 2012
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		4	$	1,359	$	1,520
Construction and development		1		172		172
Other		5		262		324
Residential Mortgage		28		2,455		2,596
Consumer
Real estate		24		830		830
Auto		3		16		15
Boat/RV		7		154		153
Other		4		53		52

Nine Months Ended September 30, 2011
			Pre- Modification		Post- Modification
			Outstanding		Outstanding
	No. of Loans		Recorded Balance		Recorded Balance
Commercial
Real Estate		1	$	113	$	70
Construction and development		2		3,728		3,728
Other		1		103		103
Residential Mortgage		22		2,529		2,598
Consumer
Real estate		22		555		551
Auto		1		10		10
Boat/RV		12		364		357
Other		1		14		1

Newly Restructured Loans by Types

Newly restructured loans by types are as follows:

Three Months Ended September 30, 2012
	Interest Only		Term		Combination		Total Modification
Commercial
Real Estate	$	-	$	-	$	439	$	439
Construction and development		-		-		172		172
Other		-		46		-		46
Residential Mortgage		-		36		698		734
Consumer
Real estate		-		22		416		438
Auto		-		4		4		8
Boat/RV		-		95		-		95
Other		-		-		36		36

Nine Months Ended September 30, 2012
	Interest Only		Term		Combination		Total Modification
Commercial
Real Estate	$	-	$	403	$	1,117	$	1,520
Construction and development		-		-		172		172
Other		-		143		181		324
Residential Mortgage		320		169		2,107		2,596
Consumer
Real estate		-		55		775		830
Auto		-		11		4		15
Boat/RV		-		153		-		153
Other		-		8		44		52

Troubled Debts Restructured Defaulted

The following tables provide detail regarding troubled debts restructured in the last twelve months that have defaulted in the quarter ended September 30, 2012.

Three and Nine Months Ended September 30, 2012
			Post- Modification
			Outstanding
	No. of Loans		Recorded Balance
Commercial
Real Estate		1	$	109
Other		1		518
Residential Mortgage		1		31
Consumer
Other		1		14