UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549

                                    FORM 10-Q

[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934

 For the transition period from ______________________ to ______________________

                        Commission File Number 000-27905


                               MFS FINANCIAL, INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

        Maryland                                                35-2085640
--------------------------------------------------------------------------------
(State or other jurisdiction of                               (IRS Employer
incorporation or organization)                            Identification Number)

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

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

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

The  number of shares of the  Registrant's  common  stock,  without  par  value,
outstanding as of March 31, 2000 was 5,819,611.


<PAGE>
<TABLE>
<CAPTION>


                                    FORM 10-Q
                               MFS Financial, Inc.
                                      INDEX



                                                                                              Page
PART I -- FINANCIAL INFORMATION                                                              Number
<S>                                                                                            <C>
Item 1.  Financial Statements
         Consolidated Condensed Balance Sheets at
          March 31, 2000 and December 31, 1999                                                  3
         Consolidated Condensed Statement of Income for the three months
          ended March 31, 2000 and March 31, 1999                                               4
         Consolidated Condensed Statement of Stockholders' Equity
          for the three months ended March 31, 2000                                             5
         Consolidated Condensed Statement of Cash Flows for the three months
          ended March 31, 2000 and March 31, 1999                                               6
         Notes to Unaudited Consolidated Condensed Financial Statements                         7
Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                                             8
Item 3.  Quantitative and Qualitative Disclosures about Market Risk                            11

PART II -- OTHER INFORMATION
Item 1.  Legal Proceedings                                                                     12
Item 2.  Changes in Securities and Use of Proceeds                                             12
Item 3.  Defaults Upon Senior Securities                                                       12
Item 4.  Submission of Matters to a Vote of Security Holders                                   12
Item 5.  Other Information                                                                     12
Item 6.  Exhibits and Reports on Form 8-K                                                      12

Signature Page                                                                                 13

</TABLE>

                                        2

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

<TABLE>
<CAPTION>
                       MFS FINANCIAL, INC. AND SUBSIDIARY
                      Consolidated Condensed Balance Sheet
                                    (Unaudited)

                                                                       March 31,        December 31,
                                                                         2000              1999
                                                                       -----------      -----------
<S>                                                                  <C>              <C>
Assets
   Cash                                                               $ 13,247,907      $19,217,186
   Interest-bearing deposits                                               277,310          765,945
                                                                      -----------------------------
      Cash and cash equivalents                                         13,525,217       19,983,131
   Trading assets, at fair value                                                         1,234,884
   Investment securities:
      Available for sale                                                32,098,803       29,598,800
      Held to maturity                                                  12,190,386       12,449,013
                                                                      -----------------------------
                Total investment securities                             44,289,189       42,047,813
   Loans                                                               454,080,224      446,438,992
      Allowance for loan losses                                         (3,780,178)      (3,652,073)
                                                                      -----------------------------
   Net loans                                                           450,300,046      442,786,919
   Premises and equipment                                                7,716,106        7,800,460
   Federal Home Loan Bank of Indianapolis stock, at cost                 5,338,500        5,338,500
   Investment in limited partnerships                                    5,257,686        5,274,840
   Cash surrender value of life insurance                               10,926,957       10,806,957
   Foreclosed real estate                                                1,697,039          728,737
   Interest receivable:
       Loans                                                             2,237,822        2,134,656
       Mortgage-backed securities                                           53,401           58,687
       Investment securities and interest-bearing deposits                 372,314          459,616
   Core deposit intangibles and goodwill                                 1,408,043        1,466,928
   Deferred income tax benefit                                           2,710,521        2,670,886
   Other assets                                                          1,562,617        1,730,426
                                                                      -----------------------------
                Total assets                                          $547,395,458     $544,523,440
                                                                      =============================
Liabilities
   Deposits
         Non-interest-bearing                                         $ 18,866,928     $ 14,360,929
         Interest bearing                                              360,011,929      350,243,469
                                                                      -----------------------------
              Total deposits                                           378,878,857      364,604,398
   Federal Home Loan Bank Advances                                      59,789,384       72,289,384
   Other Borrowings                                                      1,768,354        2,608,354
   Advances by borrowers for taxes and insurance                         2,170,313        1,289,179
   Interest payable                                                      1,978,586        2,153,475
   Other Liabilities                                                     4,998,116        4,866,330
                                                                      -----------------------------
             Total liabilities                                         449,583,610      447,811,120
                                                                      -----------------------------
Stockholders' Equity
   Preferred stock, $.01 par value
        Authorized and unissued --- 20,000,000 shares

   Common stock, $.01 par value
        Authorized --- 20,000,000 shares
        Issued and outstanding --- 5,819,611                                58,196           58,196
   Additional paid-in capital                                           56,732,407       56,740,190
   Retained earnings                                                    45,747,930       44,647,767
   Accumulated other comprehensive loss                                   (356,399)        (284,047)
   Unearned employee stock ownership plan (ESOP) shares                 (4,370,286)      (4,449,786)
                                                                      -----------------------------
              Total stockholders' equity                                97,811,848       96,712,320
                                                                      -----------------------------
              Total liabilities and stockholders' equity              $547,395,458     $544,523,440
                                                                      =============================
</TABLE>

See notes to consolidated condensed financial statements.

                                       3


<PAGE>

<TABLE>
<CAPTION>

                      MFS FINANCIAL, INC. AND SUBSIDIARY
                   Consolidated Condensed Statement of Income
                                   (Unaudited)

                                                                  Three Months Ended
                                                                        March 31
                                                              ----------------------------
                                                                 2000              1999
                                                              ----------        ----------
<S>                                                           <C>               <C>
Interest Income
---------------
     Loans receivable, including fees                         $8,705,620        $7,835,284
     Trading account securities                                    8,192             6,706
     Investment securities
        Mortgage-backed securities available for sale            238,139            96,182
        Federal Home Loan Bank stock                             106,186            71,258
        Other investments held to maturity                       284,014           139,708
        Other investments available for sale                     181,805           108,872
     Deposits with financial institutions                         13,471            85,936
                                                              ----------------------------
          Total interest income                                9,537,427         8,343,946
                                                              ----------------------------

Interest Expense
----------------
     Passbook savings                                            200,036           211,132
     Certificates of deposit                                   3,279,727         3,339,597
     Daily money market accounts                                 320,687           213,475
     Demand and NOW acounts                                      121,268           161,759
     Federal Home Loan Bank advances                             809,974           665,038
     Other interest expense                                        5,497             6,100
                                                              ----------------------------
          Total interest expense                               4,737,189         4,597,101
                                                              ----------------------------

     Net Interest Income                                       4,800,238         3,746,845
     Provision for loan losses                                   171,250           190,000
                                                              ----------------------------
          Net Interest Income After Provision
           for Loan Losses                                     4,628,988         3,556,845
                                                              ----------------------------

Other Income
------------
     Service fee income                                          476,597           363,177
     Net trading account profit (loss)                            25,116           (12,109)
     Equity in losses of limited partneships                      (2,547)           (2,548)
     Commissions                                                 127,981            82,834
     Increase in cash surrender value of life insurance          120,000           105,000
     Other income                                                 86,734            89,619
                                                              ----------------------------
          Total other income                                     833,881           625,973
                                                              ----------------------------
Other Expenses
--------------
     Salaries and employee benefits                            1,848,205         1,569,059
     Net occupancy expenses                                      179,173           166,790
     Equipment expenses                                          194,699           152,073
     Data processing fees                                        128,284           131,013
     Deposit insurance expense                                    19,998            55,000
     Advertising and promotion                                   111,255            94,627
     Other expenses                                              697,719           557,992
                                                              ----------------------------
          Total other expenses                                 3,179,333         2,726,554
                                                              ----------------------------

     Income Before Income Tax                                  2,283,536         1,456,264
       Income tax expense                                        776,000           480,500
                                                              ----------------------------
     Net Income                                               $1,507,536        $  975,764
                                                              ============================
     Basic earnings per share                                      $0.28

     Diluted earnings per share                                    $0.28

     Dividends per share                                           $0.07

</TABLE>

See notes to consolidated condensed financial statements.

                                       4


<PAGE>

<TABLE>
<CAPTION>

                                                   MFS FINANCIAL, INC. AND SUBSIDIARY
                                        Consolidated Condensed Statement of Stockholders' Equity
                                                For the Three Months Ended March 31, 2000
                                                               (Unaudited)


                                                 Common Stock                                                          Accumulated
                                           ----------------------  Additional                                            Other
                                              Shares                paid-in        Comprehensive      Retained        Comprehensive
                                            Outstanding   Amount    capital            Income         Earnings           Loss
                                            -----------   ------   ----------      -------------      --------        -------------
<S>                                         <C>           <C>      <C>             <C>               <C>              <C>
Balances January 1, 2000                    5,819,611     $58,196  $56,740,190                       $44,647,767      $(284,047)

Comprehensive income

     Net income for the period                                                     $1,507,536          1,507,536

     Other comprehensive loss, net of tax

        Unrealized losses on securities                                               (72,352)                          (72,352)
                                                                                   ----------
Comprehensive income                                                               $1,435,184
                                                                                   ==========
ESOP shares earned                                                      (7,783)

Cash dividends ($.07 per share)                                                                         (407,373)
                                            ----------------------------------------------------------------------------------------
Balances, March 31, 2000                    5,819,611     $58,196  $56,732,407                       $45,747,930      $(356,399)
                                            ========================================================================================

</TABLE>

                                                   Unearned
                                                    ESOP
                                                   shares            Total
                                                ------------      -----------

Balances January 1, 2000                        $(4,449,786)      $96,712,320

Comprehensive income

     Net income for the period                                      1,507,536

     Other comprehensive loss, net of tax

        Unrealized losses on securities                               (72,352)

Comprehensive income

ESOP shares earned                                   79,500            71,717

Cash dividends ($.07 per share)                                      (407,373)
                                            ----------------------------------
Balances, March 31, 2000                        $(4,370,286)       $97,811,848
                                            ==================================

See notes to consolidated condensed financial statements.

                                       5
<PAGE>

<TABLE>
<CAPTION>
                       MFS FINANCIAL, INC. AND SUBSIDIARY
                 Consolidated Condensed Statement of Cash Flows
                                   (Unaudited)

                                                                                         Three Months Ended
                                                                                             March 31,
                                                                                ----------------------------------
                                                                                     2000                  1999
                                                                                ----------             -----------
<S>                                                                             <C>                    <C>
Operating Activities
--------------------
     Net income                                                                  $1,507,536             $   975,764
     Adjustments to reconcile net income to net cash provided
      by operating activities:
          Provision for loan losses                                                 171,250                 190,000
          Net loss on sale of real estate owned                                      22,819                  20,939
          Securities amortization, net                                               (9,344)
          ESOP shares earned                                                         71,717                  (2,093)
          Equity in losses of limited partnerships                                    2,547                   2,548
          Amortization of net loan origination costs                                372,804                 181,044
          Amortization of core deposit intangibles and goodwill                      58,885                  58,884
          Depreciation and amortization                                             186,865                 166,571
          Deferred income tax                                                                                 7,680
          Change in
               Trading account securities                                         1,234,884              (1,437,671)
               Interest receivable                                                  (10,578)                (61,976)
               Other assets                                                         167,810                 690,569
               Interest payable                                                    (174,889)               (207,902)
               Other liabilities                                                    131,786                 (60,722)
               Increase in cash surrender value of life insurance                  (120,000)               (105,000)
                                                                                -----------------------------------
                        Net cash provided by operating activities                 3,614,092                 418,635
                                                                                -----------------------------------
Investing Activities
--------------------
     Purchases of securities available for sale                                  (3,142,910)             (2,346,982)
     Proceeds from maturities and paydowns of securities available for sale         544,096                 458,700
     Proceeds from sales of securities available for sale                                                 1,502,885
     Purchases of securities held to maturity                                                            (4,993,284)
     Proceeds from maturities and paydowns of securities held to maturity           254,796               4,095,642
     Net change in loans                                                         (9,294,573)             (6,131,837)
     Purchases of premises and equipment                                           (102,510)               (118,247)
     Proceeds from real estate owned sales                                          280,393                  62,049
     Distribution from limited partnership                                           14,607                   3,111
     Other investing activities                                                     (34,125)                 (1,902)
                                                                                -----------------------------------
                        Net cash used by investing activities                   (11,480,226)             (7,469,865)
                                                                                -----------------------------------

Financing Activities
--------------------
     Net change in:
          Noninterest-bearing, interest bearing demand and savings deposits       2,616,842              (3,596,225)
          Certificates of deposits                                               11,657,617              10,663,522
          Short-term borrowings                                                    (840,000)
     Repayment of note payable                                                                              (30,679)
     Proceeds from FHLB advances                                                 58,500,000              16,000,000
     Repayment of FHLB advances                                                 (71,000,000)            (17,000,000)
     Net change in advances by borrowers for taxes and insurance                    881,134                 801,263
     Dividends paid                                                                (407,373)
                                                                                -----------------------------------
                        Net cash provided by financing activities                 1,408,220               6,837,881
                                                                                -----------------------------------

Net Change in Cash and Cash Equivalents                                          (6,457,914)               (213,349)

Cash and Cash Equivalents, Beginning of Period                                   19,983,131              12,938,102
                                                                                -----------------------------------

Cash and Cash Equivalents, End of Period                                        $13,525,217             $12,724,753
                                                                                ===================================
     Additional Cash Flows Information
     Interest paid                                                              $ 4,917,050             $ 4,805,003
     Income tax paid                                                                256,000                 147,300
     Transfers from loans to foreclosed real estate                               1,237,392                 149,996


</TABLE>

See notes to consolidated condensed financial statements.

                                       6
<PAGE>
                      MFS FINANCIAL, INC. AND SUBSIDIARIES
               NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
                                   STATEMENTS

NOTE 1:  Basis of Presentation
The  consolidated  financial  statements  include the accounts of MFS Financial,
Inc. (the "Company"), its wholly owned subsidiary,  Mutual Federal Savings Bank,
a federally chartered savings bank ("Mutual Federal"),  and Mutual Federal's two
wholly owned subsidiaries,  First MFSB Corporation and Third MFSB Corporation. A
summary of  significant  accounting  policies is set forth in Note 1 of Notes to
Financial  Statements  included  in the  December  31,  1999  Annual  Report  to
Shareholders.  All significant inter-company accounts and transactions have been
eliminated in consolidation.

The interim  consolidated  financial statements have been prepared in accordance
with instructions to Form 10-Q, and therefore do not include all information and
footnotes  necessary for a fair presentation of financial  position,  results of
operations  and cash flows in  conformity  with  generally  accepted  accounting
principles.

The interim  consolidated  financial  statements at March 31, 2000,  and for the
three months ended, March 31, 2000 and 1999 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.

NOTE 2:  Earnings Per Share
Earnings per share have been computed based upon the weighted average common and
common  equivalent  shares  outstanding  during the period  subsequent to Mutual
Federal's  conversion  to a stock  savings bank on December  29, 1999.  Unearned
Employee Stock  Ownership Plan shares have been excluded from the computation of
average  common shares  outstanding.  For the three months ended March 31, 2000,
weighted  average shares  outstanding  for basic and diluted  earnings per share
were 5,368,312.

                                       7
<PAGE>

ITEM 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

GENERAL

MFS Financial,  Inc., a Maryland  Corporation (the "Company"),  was organized in
September,  1999.  On December 29, 1999,  it acquired the common stock of Mutual
Federal  Savings Bank ("Mutual  Federal")  upon the conversion of Mutual Federal
from a federal mutual savings bank to a federal stock savings bank.

Mutual  Federal was  originally  organized  in 1889 and  currently  conducts its
business from thirteen full service offices located in Delaware,  Randolph,  and
Kosciusko  Counties,  Indiana,  with its main office  located in Muncie.  Mutual
Federal's  principal  business consists of attracting  deposits from the general
public and originating fixed rate and adjustable rate loans secured primarily by
first  mortgage  liens on one-to- four family  residential  real estate.  Mutual
Federal's  deposit  accounts are insured up to applicable  limits by the SAIF of
the FDIC.

Mutual Federal offers a number of financial services, including: (1) one-to-four
family residential real estate loans; (2) commercial real estate loans; (3) real
estate construction  loans; (4) land loans; (5) multi-family  residential loans;
(6) consumer loans, including home equity loans, automobile loans,  recreational
vehicle and boat loans;  (7) commercial  loans; (8) money market demand accounts
("MMDA's"); (9) savings accounts; (10) checking accounts; (11) NOW accounts; and
(12) certificates of deposit.

Mutual Federal currently owns two subsidiaries, First MFSB Corporation and Third
MFSB Corporation.  The assets of First MFSB Corporation consist of an investment
in Family Financial Life Insurance Company. Family Financial is an Indiana stock
insurance  company that primarily engages in retail sales of mortgage and credit
life insurance  products in connection with loans  originated by its shareholder
financial  institutions.  Third MFSB,  which does  business as Mutual  Financial
Services,  offers  tax-deferred  annuities,  long-term health and life insurance
products.  All securities  related products and services made available  through
Mutual   Financial   Services   are  offered  by  a  third   party   independent
broker-dealer.

The  Company's  results of  operations  depend  primarily  upon the level of net
interest income,  which is the difference  between the interest income earned on
interest earning assets, such as loans and investments,  and costs incurred with
respect to interest  bearing  liabilities,  primarily  deposits and  borrowings.
Results of operations  also depend upon the level of the Company's  non-interest
income,  including  fee  income  and  service  charges,  and  the  level  of its
non-interest expense, including general and administrative expenses.

FORWARD LOOKING STATEMENT

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



                                        8
<PAGE>
FINANCIAL CONDITION

Assets  totaled  $547.4 million at March 31, 2000, an increase from December 31,
1999 of $2.9 million for an annualized growth rate of 2.1%. This growth occurred
in net loans, up $7.5 million from year-end 1999 primarily due to a $6.3 million
increase in consumer  loans.  Loan growth was funded by growth of deposits and a
reduction of cash and cash equivalents.

Deposits  totaled  $378.9 million at March 31, 2000 an increase of $14.3 million
or an annualized  rate of 15.7% from December 31, 1999.  Increases in short-term
savings and transaction  type accounts  account for $8.6 million of this growth.
Total  borrowings  decreased $13.3 million to $61.6 million,  as a result of the
utilization  of a portion of the proceeds from the stock sale and a reduction of
cash which had been held for Y2K purposes.

Stockholders'  equity  increased $1.1 million from $96.7 million at December 31,
1999 to $97.8 million at March 31, 2000.  The increase was due to net income for
the quarter  ended March 31, 2000 of $1.5 million and Employee  Stock  Ownership
Plan (ESOP) shares earned of $72,000.  A cash dividend  declared of $407,000 and
an increase in the unrealized  loss on available for sale  securities of $72,000
partially offset these increases.

Comparison  of the  operating  results for the three months ended March 31, 2000
and 1999.

Net income was $1.5 million or 28 cents for both basic and diluted  earnings per
share for the quarter ended March 31, 2000.  This compared to net income for the
comparable  period in 1999 of $976,000.  The increase in earnings was  primarily
due to an increase in net  interest  income  partially  offset by  increases  in
non-interest  expenses and income tax expense.  The annualized return on average
assets was 1.2% and .83% for the three months  ended March 31,  2000,  and 1999,
respectively.

Interest income  increased $1.2 million or 14.3% from $8.3 million for the three
months  ended  March  31,  1999 to $9.5  million  for the same  period  in 2000.
Interest  expense  increased  $140,000  or 3.0% from $4.6  million for the three
months ended  March,  1999,  to $4.7  million for the same period in 2000.  As a
result,  net interest income for the three months ended March 31, 2000 increased
$1.1 million or 28.1%  compared to the same period in 1999.  The increase in net
interest  income was due  primarily to increases in the volume of average  loans
receivable  and the  average  investment  securities  available  for  sale.  The
increase in average  loans  outstanding  was due to increased  loan demand.  The
increase in investment securities available for sale was primarily  attributable
to proceeds  received in  conjunction  with the Company's  stock  issuance.  Net
proceeds of the  Company's  stock  issuance  after cost and excluding the shares
issued for the ESOP were $49.9 million.

The Company's provision for loan losses for the three-month ended March 31, 2000
was $171,000  compared to $190,000 for the same period in 1999.  Mutual  Federal
reviews all loans on an individual basis when the loan reaches 90 days past due,
at which  point  they are put on  non-accrual  status.  At  March  31,  2000 and
December 31, 1999,  respectively,  non-accrual loans were $357,000 and $753,000.
The  allowance  for loan  losses was $3.8  million or .83% of net loans and $3.7
million or  approximately  .82% of net loans at March 31, 2000 and  December 31,
1999, respectively.

                                        9

<PAGE>

Non-interest  income  increased  $208,000,  or 33.2% for the three  months ended
March 31, 2000 compared to the same period in 1999  primarily due to transaction
account growth resulting in an increase in service fee income and commissions of
$158,000  and a gain of $25,000 on net trading  account  activity  compared to a
loss of $12,000 for the three month period ended March 31, 1999.

Non-interest  expense  increased  $452,000 or 16.6% for the three  months  ended
March 31,  2000  compared  to the same  period in 1999.  Salaries  and  employee
benefits were $1.9 million for the three months ended March 31, 2000 compared to
$1.6  million for the 1999  period,  an  increase  of  $280,000  or 17.8%.  This
increase resulted primarily from $72,000 of compensation  expense related to the
ESOP, and the additions to staffing for a new in-store branch opened in 1999. In
addition, both the commercial and consumer lending staffs were expanded.

Other expenses also increased $210,000 for the three months ended March 31, 2000
compared to the same period in 1999.  The  increase in other  expenses  resulted
from nominal increase in a variety of expense  categories.  These increases were
partially  offset by a $35,000  decrease in deposit  insurance  expense from the
three  months ended March 31, 2000  compared to the same period of 1999,  due to
rate reduction.

Income tax expense increased  $296,000 for the three months ended March 31, 2000
compared  to the same period in 1999.  The  increase  was a result of  increased
taxable income for the period.

Liquidity and Capital Resources

The standard measure of liquidity for savings  associations is the ratio of cash
and eligible  investments to a certain  percentage of net  withdrawable  savings
accounts and borrowings due within the one-year.  The minimum  required ratio is
currently set by the Office of Thrift Supervision  regulation at 4%. As of March
31, 2000 Mutual Federal had liquid assets of $41.4 million and a liquidity ratio
of 8.9%.

                                       10
<PAGE>

ITEM 3 - Quantitative and Quantitative Disclosures about Market Risk

Presented  below as of March 31, 2000 and 1999 is an analysis  performed  by the
OTS of Mutual Federal's interest risk as measured by changes in Mutual Federal's
net portfolio value ("NPV") for instantaneous  and sustained  parallel shifts in
the yield curve, in 100 basis point increments, up and down 300 basis points.

<TABLE>
<CAPTION>

                                 March 31, 2000

                               Net Portfolio Value                    NPV as % of PV of Assets
Changes           -------------------------------------------         ------------------------
In Rates          $ Amount         $ Change          % Change         NPV Ratio         Change
--------          --------         --------          --------         ---------         ------
<S>               <C>              <C>               <C>              <C>               <C>

+300 bp           43,810           -30,071           -41%             8.81%             -496 bp
+200 bp           54,045           -19,837           -27%             10.59%            -319 bp
+100 bp           64,236           -9,646            -13%             12.27%            -151 bp
0 bp              73,882                                              13.77%
-100 bp           81,808           7,926             11%              14.94%            +116 bp
-200 bp           86,534           12,652            17%              15.57%            +179 bp
-300 bp           90,081           16,200            22%              16.00%            +222 bp

</TABLE>

<TABLE>
<CAPTION>

                                 March 31, 1999

                               Net Portfolio Value                    NPV as % of PV of Assets
Changes           -------------------------------------------         ------------------------
In Rates          $ Amount         $ Change          % Change         NPV Ratio         Change
--------          --------         --------          --------         ---------         ------
<S>               <C>              <C>               <C>              <C>               <C>

+300 bp           22,806           -20,653           -48%             5.12%             -402 bp
+200 bp           30,679           -12,780           -29%             6.72%             -241 bp
+100 bp           37,854           -5,605            -13%             8.11%             -103 bp
0 bp              43,459                                              9.14%
-100 bp           47,369           3,910             9%               9.81%             +67 bp
-200 bp           50,099           6,641             15%              10.24%            +110 bp
-300 bp           53,950           10,491            24%              10.85%            +171 bp

</TABLE>

The  analysis  at March 31,  2000  indicates  that there  have been no  material
changes in market interest rates for Mutual Federal's  interest rate sensitivity
instruments  which  would cause a material  change in the market risk  exposures
which effect the  quantitative  and qualitative risk disclosures as presented in
item 7A of the  Company's  annual  report  on Form  10-K  for the  period  ended
December 31, 1999.



                                     11

<PAGE>
                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     None.

Item 2. Changes in Securities and use of Proceeds

     None.

Item 3. Defaults Upon Senior Securities.

     None.

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

     None.

Item 5. Other Information.

     None.

Item 6. Exhibits and Reports on form 8-K.

     (a)  Exhibits 27. Financial Data Schedule

     (b)  No reports on form 8-K were filed  during the quarter  ended March 31,
          1999.

                                       12

<PAGE>


                                   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.


                                          MFS Financial, Inc.

Date:  May 12, 2000                       By:  /s/  R. Donn Roberts
                                          -----------------------------------
                                          R. Donn Roberts
                                          President and Chief Executive
                                           Officer


Date:  May 12, 2000                       By:  /s/  Timothy J. McArdle
                                          -----------------------------------
                                          Timothy J. McArdle
                                          Senior Vice President and Treasurer

                                       13