# SHAREHOLDER
INFORMATION
ANNUAL
MEETING

The annual
meeting of shareholders will be held at 3:00 p.m. local time, on April 28, 2004, at the
Company's main office located at 110 E. Charles Street, Muncie, Indiana.

|Transfer Agent:                            |                                     
|------------------------------------------ | ------------------------------------
|Continental Stock Transfer & Trust Company
|17 Battery Place, 8th Floor               
|New York, New York 10004                  
|                                          
|General Counsel:                           | Special Counsel:                    
|Beasley & Gilkison, LLP                    | Silver, Freedman & Taff, L.L.P.     
|110 E. Charles Street                      | 1700 Wisconsin Av. N.W.             
|Muncie, IN 47305                           | Washington, D.C. 20007              
|                                          
|Independent Auditor:                      
|BKD, LLP                                  
|201 N. Illinois, Suite 700                
|Indianapolis, IN 46204                    
|                                          
|Shareholder and General Inquiries:        
|David W. Heeter                            | Timothy J. McArdle                  
|President and Chief Executive Officer      | Senior Vice President, Treasurer and
|MutualFirst Financial, Inc.                | Chief Financial Officer             
|110 E. Charles Street                     
|Muncie, IN 47305                          

# ANNUAL AND OTHER REPORTS

Additional
copies of the Company's Annual Report or Form 10-K filed with the Securities and
Exchange Commission, are available at www.mfsbank.com. The common stock for
*MutualFirst* Financial, Inc. is traded under the symbol "MFSF"; on the
NASDAQ National Market. The table below shows the high and low closing prices for our
common stock for the periods indicated. This information was provided by the NASDAQ. At
March 4, 2004, there were 5,225,200 shares of common stock issued and outstanding and
approximately 1,412 shareholders of record.

|                                |                    
|------------------------------- | -------------------
|High                            |                    
|First Quarter (ended 03/31/02)  |                    
|Second Quarter (ended 06/30/02) |                    
|Third Quarter (ended 09/30/02)  |                    
|Fourth Quarter (ended 12/31/02) |                    
|                                |                    
|Stock Price                     | Dividends per Share
|High                            |                    
|First Quarter (ended 03/31/03)  |                    
|Second Quarter (ended 06/30/03) |                    
|Third Quarter (ended 09/30/03)  |                    
|Fourth Quarter (ended 12/31/03) |                    

Our cash
dividend payout policy is continually reviewed by management and the Board of Directors.
The Company intends to continue its policy of paying quarterly dividends; however, the
payment will depend upon a number of factors, including capital requirements, regulatory
limitations, the Company's financial condition, results of operations and the
Bank's ability to pay dividends to the Company. The Company relies significantly upon
such dividends originating from the Bank to accumulate earnings for payment of cash
dividends to shareholders.

SELECTED CONSOLIDATED FINANCIAL AND
OTHER DATA

The following information is only a
summary and you should read it in conjunction with our consolidated financial statements
and accompanying notes contained in this Annual Report.

|                                    | At or For the Year Ended December 31,
|----------------------------------- | -------------------------------------
|                                    |                                      
|
|
|Selected Financial Condition Data   |                                      
|                                    |                                      
|Total Assets                        |                                      
|                                    |                                      
|Cash and cash equivalents           |                                      
|                                    |                                      
|Loans, net                          |                                      
|                                    |                                      
|Investment Securities:              |                                      
|Available-for -sale, at fair value  |                                      
|Held-to-maturity                    |                                      
|                                    |                                      
|Total  deposits                     |                                      
|                                    |                                      
|Total borrowings                    |                                      
|                                    |                                      
|Total stockholders' equity          |                                      
|                                    |                                      
|                                    |                                      
|                                    |                                      
|                                    |                                      
|Selected Operations Data            |                                      
|                                    |                                      
|Total interest income               |                                      
|Total interest expense              |                                      
|                                    |                                      
|                                    |                                      
|Net interest income                 |                                      
|Provision for loan losses           |                                      
|                                    |                                      
|Net interest income after provision |                                      
|for loan losses                     |                                      
|                                    |                                      
|Service fee income                  |                                      
|Gain on sale of loans and           |                                      
|investment securities               |                                      
|Other non-interest income           |                                      
|                                    |                                      
|Total non-interest income           |                                      
|                                    |                                      
|Salaries and  employee benefits     |                                      
|Charitable contributions            |                                      
|Other  expenses                     |                                      
|                                    |                                      
|Total non-interest expense          |                                      
|                                    |                                      
|Income before taxes                 |                                      
|                                    |                                      
|Income tax expense                  |                                      
|                                    |                                      
|Net income                          |                                      
|                                    |                                      

|                                                        | At or For the Year Ended December 31,
|------------------------------------------------------- | -------------------------------------
|                                                        |                                      
|
|Selected Financial Ratios and Other Financial Data:    
|Performance Ratios:                                     |                                      
|Return on average assets (ratio of net                  |                                      
|income to average total assets)                         |                                      
|Return on average equity (ratio of net                  |                                      
|income to average equity)                               |                                      
|Interest rate spread information:                       |                                      
|Average during the period                               |                                      
|                                                        |                                      
|Net interest margin(1)                                  |                                      
|                                                        |                                      
|Ratio of operating expense to average                   |                                      
|total asstes                                            |                                      
|                                                        |                                      
|Ratio of average interest-earning                       |                                      
|assets to average interest-bearing                      |                                      
|liabilities                                             |                                      
|Efficiency ratio(2)                                     |                                      
|                                                        |                                      
|                                                        |                                      
|Asset Quality Ratios:(4)                                |                                      
|Non-performing assets to total assets                   |                                      
|Non-performing loans to total loans                     |                                      
|Allowance for loan losses to       non-performing loans |                                      
|Allowance for loan losses to loans                      |                                      
|receivable,net                                          |                                      
|                                                        |                                      
|                                                        |                                      
|Capital Ratios:                                         |                                      
|Equity to total assets(4)                               |                                      
|Average equity to average assets                        |                                      
|                                                        |                                      
|                                                        |                                      
|Share and Per Share Data:                               |                                      
|Average common shares outstanding                       |                                      
|Basic                                                   |                                      
|Diluted                                                 |                                      
|Per share:                                              |                                      
|Basic earnings                                          |                                      
|Diluted earnings                                        |                                      
|Dividends                                               |                                      
|                                                        |                                      
|                                                        |                                      
|Dividend payout ratio(3)                                |                                      
|                                                        |                                      
|                                                        |                                      
|Other Data:                                             |                                      
|Number of full-service offices                          |                                      

|(1) |  | Net
interest income divided by average interest earning assets.
|--- |  | ---------------------------------------------------------------

|(2) |  | Total
non-interest expense divided by net interest income plus total non-interest income
|--- |  | ----------------------------------------------------------------------------------------

|(3) |  | Dividends
per share divided by diluted earnings per share
|--- |  | ---------------------------------------------------------

|(4) |  | At
end of period
|--- |  | ----------------

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS





Introduction



MutualFirst Financial, Inc., a Maryland corporation, is a savings and loan holding company, which has as its wholly-owned subsidiary, Mutual Federal Savings Bank, Muncie, Indiana.  MFS Financial, Inc. was formed in September 1999 to become the holding company of Mutual Federal in connection with Mutual Federal's conversion from the mutual to stock form of organization on December 29, 1999.  In April 2000, MFS Financial, Inc. formally changed its corporate name to MutualFirst Financial, Inc. (MutualFirst).  The words we, our and us refer to MutualFirst and Mutual Federal on a consolidated basis, except that references to us prior to December 29, 1999 refer only to Mutual Federal.



Our principal business consists of attracting retail deposits from the general public and investing those funds primarily in permanent 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. We are headquartered in Muncie, Indiana with 17 retail offices primarily serving Delaware, Randolph, Kosciusko, and Grant counties in Indiana.  We also originate mortgage loans in contiguous counties, and we originate indirect consumer loans throughout Indiana.



The following discussion is intended to assist your understanding of our financial condition and results of operations.  The information contained in this section should be read in conjunction with our consolidated financial statements and the accompanying notes to our consolidated financial statements.



Our results of operations depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, which principally consist of loans and mortgage-backed and investment securities, and interest expense on interest-bearing liabilities, which principally consist of deposits and borrowings.  Our results of operations also are affected by the level of our non-interest income and expenses and income tax expense.



Forward-Looking Statements



The discussion contains various forward-looking statements, which are based on assumptions and describe our future plans and strategies and our expectations.  These forward-looking statements are generally identified by words such as believe, expect, intend, anticipate, estimate, project, or similar words.  Our ability to predict results or the actual effect of future plans or strategies is uncertain.  Factors which could cause actual results to differ materially from those estimated include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of our
loan and investment portfolios, demand for our loan products, deposit flows, our operating expenses, competition, demand for financial services in our market areas

and accounting principles and guidelines.  These risks and uncertainties should be considered in evaluating forward-looking statements and you should not rely too much on these statements.  We do not undertake, and specifically disclaim any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.



Management Strategy



Our strategy is to operate as an independent, retail oriented financial institution dedicated to serving customers in our market areas.  Our commitment is to provide a broad range of products and services to meet the needs of our customers.  As part of this commitment, we are looking to increase our emphasis on commercial business products and services.  We have also created a fully interactive transactional website.  In addition, we are continually looking at cost-effective ways to expand our market area.



Financial highlights of our strategy include:





Continuing as a Diversified Lender.  We have been successful in diversifying our loan portfolio to reduce our reliance on any one type of loan.  From 1995 through 2000 approximately 36% of our loan portfolio consisted of loans other than one-to four- family real estate loans.  Since that time to the end of 2003, that percentage has increased to 45.1%





Continuing as a Leading One-to Four- Family Lender.  We are one of the largest originators of one-to four-family residential loans in our four-county market area.  During 2003, we originated $224.0 million of one- to four- family residential loans.





Continuing To Focus On Asset Quality.  Non-performing assets to total assets was .57% at December 31, 2003, an improvement from .89% at December 31, 2002.  We are confident that our underwriting standards will continue to provide for a quality loan portfolio.





Continuing Our Strong Capital Position.  As a result of our consistent profitability, we have historically maintained a strong capital position.  At December 31, 2003, our ratio of stockholders' equity to total assets was 11.8%.



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 our most significant market risk.



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.  Mutual Federal's Board of Directors sets and recommends 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.  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-term 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 intend 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, in 2003, we sold $52.0 million of fixed-rate, one-to four- family, twenty to thirty year mortgage

loans in the secondary market.



The Asset and Liability Management Committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution's existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity that are authorized by our board of directors.



Mutual Federal employs a financial model that provides the following tables.  The tables present the change in our net portfolio value at December 31, 2003 and 2002 that would occur upon an immediate and sustained change in market interest rates of 100 to 300 basis points as required by the Office of Thrift Supervision, and do not give any effect to actions that management might take to counteract that change.  The changes in net portfolio value under all rate changes shown were within board of director-approved guidelines.

December 31, 2003

Net Portfolio Value

Changes
     
     
     
     NPV as % of PV of AssetsIn Rates
     $ Amount
     $ Change
     % Change
     NPV Ratio
     Change+300 bp
     
     
     61,428
        
     -30,407
        
     -33%
        
     8.05%
        
     -305 bp+200 bp
     73,401
        
     -18,434
        
     -20%
        
     9.36%
        
     -174 bp+100 bp
     83,591
        
     -8,244
        
     -9%
        
     10.37%
        
     -73 bp0 bp
     91,835
        
     
        

11.10%-100 bp
     90,618
        
     1,217
        
     -1%
        
     10.76%
        
     -34 bp-200 bp
     n/m(1)
        
     n/m(1)
        
     n/m(1)
        
     n/m(1)
        
     n/m(1)-300 bp
     n/m(1)
        
     n/m(1)
        
     n/m(1)
        
     n/m(1)
        
     n/m(1)


December 31, 2002

Net Portfolio Value

Changes
     
     
     
     NPV as % of PV of AssetsIn Rates
     $ Amount
     $ Change
     % Change
     NPV Ratio
     Change+300 bp
     
     
     71,596
        
     -24,279
        
     -25%
        
     9.77%
        
     -238 bp+200 bp
     81,139
        
     -14,736
        
     -15%
        
     10.79%
        
     -135 bp+100 bp
     89,884
        
     -5,991
        
     -6%
        
     11.66%
        
     -49 bp0 bp
     95,875
        
     
        
     
12.15%-100 bp
     93,628
        
     -2,247
        
     -2%
        
     11.68%
        
     -47 bp-200 bp
     n/m(1)
        
     n/m(1)
        
     n/m(1)
        
     n/m(1)
        
     n/m(1)-300 bp
     n/m(1)
        
     n/m(1)
        
     n/m(1)
        
     n/m(1)
        
     n/m(1)  (1)

Not
meaningful because some market rates would compute to a rate less than zero.


Certain assumptions are input to the financial model in assessing the interest rate risk of savings associations.  These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market value of certain assets under differing interest rate scenarios, among others.



As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables.  For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates.  Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.  Additionally, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset.  Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates could
deviate significantly from those assumed in calculating the tables.



Financial Condition at December 31, 2003 Compared to December 31, 2002



General.  Our total assets increased $48.0 million during 2003, ending the year at $823.8 million compared to $775.8 million at December 31, 2002, primarily due to increases in loans.  Liabilities increased $47.2 million due to increased deposits and borrowings.  Stockholders' equity increased slightly to $97.5 million as net income of $8.1 million was partially offset by stock repurchases and dividends.



Loans.  Our net loan portfolio increased $62.9 million from $641.1 million at December 31, 2002, to $704.0 million at December 31, 2003.  Consumer loans increased $17.9 million or

10.3% from $172.8 million at December 31, 2002 to $190.7 million at December 31, 2003.  Most of the consumer loan growth came from auto loans, which increased $7.5 million or 22.7% from $33.0 million to $40.5 million and recreational vehicles loans, which increased $5.5 million or 11.5% from $52.7 million to $58.2 million.  Commercial business loans increased $9.7 million or 28.0% from $34.7 million to $44.4 million at December 31, 2003. It has been our strategy to increase non-real estate mortgage loans as a percentage of our loan portfolio in order to mitigate interest rate risk and enhance the portfolio yield. Accordingly, we sold $52.0
million of our fixed rate one- to four- family mortgage loans in 2003. As a result, real estate mortgage loans increased $36.1 million or 8.1% (a lesser percentage than the aforementioned non-real estate mortgage loans) from $443.9 million to $480.0 million at December 31, 2003 and mortgage loans held for sale decreased $5.9 million.



Allowance For Loan Loss.  The allowance for loan loss increased to $6.8 million at December 31, 2003 from $6.3 million at December 31, 2002, an increase of $493,000 or 7.8%.  Net charge offs were $957,000 during 2003, as compared to net charge offs of $876,000 for 2002.  This, along with a $1.5 million loan loss provision during 2003, resulted in the allowance for loan losses as a percentage of total loans decreasing to .95% at December 31, 2003 compared to .97% at December 31, 2002.  The allowance for loan losses as a percentage of non-performing loans was 208.26% and 123.35% at December 31, 2003 and December 31, 2002, respectively.  Non-performing loans were $3.3 million or .46% of total loans at December 31, 2003 compared to $5.1 million or .79% at December 31, 2002.  The increase in the allowance for
loan losses was due to continued poor economic conditions in some of our markets, the increase in the portfolio risk due to the increased percentage of consumer and commercial loans in the portfolio and the increases in loan balances.



Securities.  Investment securities amounted to $33.5 million at December 31, 2003 compared to $42.4 million at December 31, 2002, a 21.0% decrease.  This decrease was primarily due to the use of funds from maturing securities to help fund loan growth.



Liabilities.  Our total liabilities increased $47.2 million or 6.9% to $726.3 million at December 31, 2003 from $679.1 million at December 31, 2002.  This increase was due primarily to an increase in deposits of $29.0 million, and an increase in borrowed funds of $18.8 million to provide funding for stock repurchases and to fund loan growth.



Stockholders' Equity.  Stockholders' equity increased $803,000 from $96.7 million at December 31, 2002 to $97.5 million at December 31, 2003.  The increase was due primarily to net income of $8.1 million, Employee Stock Ownership Plan (ESOP) shares earned of $752,000 and RRP shares earned of $450,000.  These increases were partially offset by the repurchase of 326,378 shares of MutualFirst common stock at a cost of $7.2 million and dividend payments of $2.0 million.  Also, unrealized gain on securities available for sale decreased $231,000 from $464,000 at December 31, 2002 to $234,000 at December 31, 2003.







Average Balances, Net Interest Income, Yields Earned and Rates Paid



The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates.  No tax equivalent adjustments were made.  All average balances are daily average balances.  Non-accruing loans have been included in the table as loans carrying a zero yield.

|                                                 | Year ended December 31,
|------------------------------------------------ | -----------------------
|
|                                                 |                        
|
|                                                 |                        
|
|Interest-Earning Assets:                         |                        
|Interest -bearing deposits                       |                        
|Mortgage-backed securities                       |                        
|Investment securities:                           |                        
|Available-for-sale (1)                           |                        
|Held-to-maturity                                 |                        
|Loans (2) (5)                                    |                        
|Stock in FHLB of Indianapolis                    |                        
|                                                 |                        
|Total interest-earning assets                    |                        
|                                                 |                        
|Non-interest earning assets, net of allowance    |                        
|for loan losses and unrealized gain/loss         |                        
|                                                 |                        
|Total assets                                     |                        
|                                                 |                        
|                                                 |                        
|                                                 |                        
|                                                 |                        
|Interest-Bearing Liabilities:                    |                        
|Demand and NOW accounts                          |                        
|Savings deposits                                 |                        
|Money market accounts                            |                        
|Certificate accounts                             |                        
|                                                 |                        
|Total deposits                                   |                        
|Borrowings                                       |                        
|                                                 |                        
|Total interest-bearing accounts                  |                        
|                                                 |                        
|Other liabilities                                |                        
|                                                 |                        
|Total liabilities                                |                        
|Stockholders' equity                             |                        
|                                                 |                        
|Total liabilities and stockholders' equity       |                        
|                                                 |                        
|                                                 |                        
|Net earning assets                               |                        
|                                                 |                        
|                                                 |                        
|Net interest income                              |                        
|                                                 |                        
|                                                 |                        
|Net interest rate spread (3)                     |                        
|                                                 |                        
|                                                 |                        
|Net yield on average interest-earning assets (4) |                        
|                                                 |                        
|                                                 |                        
|Average interest-earning assets to               |                        
|average interest-bearing liabilities             |                        
|                                                 |                        

_______________

|(1) |  | Average
balances were calculated using amortized cost, which excludes FASB 115 valuation
allowances.
|--- |  | ----------------------------------------------------------------------------------------------------

|(2) |  | Calculated
net of deferred loan fees, loan discounts, loans in process and loss reserves.
|--- |  | -----------------------------------------------------------------------------------------

|(3) |  | Interest
rate spread is calculated by subtracting weighted average interest rate cost from
weighted average interest rate yield for the period indicated.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | The
net yield on weighted average interest-earning assets is calculated by dividing net
interest income by weighted average interest-earning assets for the period
indicated.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | The
balances include nonaccrual loans.
|--- |  | --------------------------------------

Rate/Volume Analysis



The following table presents the dollar amount changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in volume multiplied by the old rate, and (2) changes in rate, which is a change in rate multiplied by the old volume.  Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

Year Ended December 31,2003 vs. 2002
     2002 vs. 2001Increase
(decrease)
Due to
     Total
Increase
(decrease)
     Increase
(decrease)
Due to
     Total
Increase
(decrease)Volume
     Rate
     Volume
     Rate(Dollars in thousands)Interest-earning assets:Interest-bearing deposits
     ($   48
        )
     ($   56
        )
     ($  104
        )
     $106
        
     ($  120
        )
     ($   14
        )Trading account securities
     0
        
     0
        
     0
        
     0
        
     0
        
     0Investment securities:Available-for-sale
     105
        
     (568
        )
     (463
        )
     91
        
     (440
        )
     (349
        )Held-to-maturity
     0
        
     0
        
     0
        
     (270
        )
     0
        
     (270
        )Loans receivable
     1,580
        
     (4,946
        )
     (3,366
        )
     443
        
     (4,215
        )
     (3,772
        )Stock in FHLB of Indianapolis
     7
        
     (71
        )
     (64
        )
     0
        
     (96
        )
     (96
        )Total interest-earning assets
     $1,644
        
     ($5,641
        )
     (3,997
        )
     $370
        
     ($4,871
        )
     (4,501
        )Interest-bearing liabilities:Savings deposits
     $43
        
     ($  353
        )
     (310
        )
     $86
        
     ($  415
        )
     (329
        )Money market accounts
     7
        
     (259
        )
     (252
        )
     115
        
     (645
        )
     (530
        )Demand and NOW accounts
     27
        
     (267
        )
     (240
        )
     65
        
     (365
        )
     (300
        )Certificate accounts
     317
        
     (3,239
        )
     (2,922
        )
     8
        
     (4,769
        )
     (4,761
        )Borrowings
     451
        
     (747
        )
     (296
        )
     447
        
     (490
        )
     (43
        )Total interest-bearing liabilities
     $845
        
     ($4,865
        )
     (4,020
        )
     $721
        
     ($6,684
        )
     (5,963
        )Change in net interest income



     $23
        

     $1,462






Comparison of Results of Operations for Years Ended December 31, 2003 and 2002.



General. Net income for the year ended December 31, 2003 decreased $418,000 or 4.9% to $8.1 million compared to $8.5 million for the year ended December 31, 2002. Although net income decreased, diluted earnings per share increased 5.3% from $1.51 in 2002 to $1.59 in 2003 due to share repurchases in the open market.



Net Interest Income.  Interest income decreased $4.0 million, or 7.9% to $46.4 million for the year ended December 31, 2003 from $50.4 million for the year ended December 31, 2002.  Interest expense decreased $4.0 million, or 17.4% from $23.1 million for the year ended December 31, 2002 to $19.1 million for the year ended December 31, 2003.  As a result, net interest income for the year ended December 31, 2003 was flat at $27.3 million when compared to the previous year.  The average interest rate spread decreased slightly from 3.59% for the year ended December 31, 2002 to 3.56% for the year ended December 31, 2003.



Interest Income.  The decrease in interest income during the year ended December 31, 2003 was due to a reduction in the average yield on our earning assets from 7.09% in 2002 to 6.34% in 2003 as a result of lower market interest rates.  This decrease was partially offset by a $21.4 million increase in average earning assets from $711.4 million during 2002 to $732.2

million during 2003.  The majority of this increase was in average loans receivable, which increased $22.3 million from $662.2 in 2002 to $684.5 million in 2003.  The average yield on these loans decreased 63 basis points from 7.29% in 2002 to 6.56% in 2003.



Interest Expense.  The decrease in interest expense was due to a 72 basis point reduction in the cost of our average interest bearing liabilities from 3.50% in 2002 to 2.78% in 2003 as a result of lower market interest rates.  This decrease was partially offset by a $26.8 million increase in average interest bearing liabilities from $660.5 million in 2002 to $687.3 million in 2003.  The majority of this increase was in average deposits, which increased $17.7 million from $550.1 million in 2002 to $567.8 million in 2003.  The average cost on these deposits decreased 75 basis points from 3.16% in 2002 to 2.41% in 2003.



Provision for Loan Losses.  For the year ended December 31, 2003, the provision for loan losses amounted to $1.5 million compared to $1.7 million in 2002.  In each period, the provision for loan losses was based on an analysis of individual loans, prior and current year loss experience, overall growth in the portfolio, the change in the portfolio mix and current economic conditions in our markets.  While we continue to experience poor economic conditions in some of our markets and continue to change our portfolio mix to more non-mortgage related loans, the  overriding reasons for the decrease in the provision for loan losses in 2003 compared to 2002 were a reduction in non-performing loans and larger than anticipated recoveries of previously written off loans.



Other Income.  Other income for the year ended December 31, 2003 increased $27,000 from $5.9 million for the year ended December 31, 2002 to $6.0 million for the year ended December 31, 2003.  This increase was due primarily to a decrease in our equity in losses on limited partnerships, which own various low-income housing projects that provide federal income tax credits to its equity owners.  Our share of the losses was $323,000 for the year ended December 31, 2003 compared to $517,000 the previous year.  Another factor affecting the change in other income was a $193,000 increase in service fee income.  Also, cash surrender values of life insurance improved $135,000 in 2003 compared to 2002. These changes were partially offset by a decrease in net servicing fees of $448,000 (including a $320,000 third quarter
valuation reserve for mortgage servicing rights).



Other Expense.  Total operating expenses increased $766,000 or 3.9% from $19.7 million for the year ended December 31, 2002 to $20.5 million for 2003.  Salaries and employee benefits were $13.1 million for the year ended December 31, 2003 compared to $12.5 million for the 2002 period, an increase of $643,000 or 5.2%.  The changes in salaries and benefits included a $397,000 increase in health insurance premium costs, increased ESOP expense due to the increase in the market value of our stock, staffing increases in the lending area due to increased activity, and annual pay increases. Also adding to operating expenses for 2003 was a more aggressive marketing effort to promote loans and short term core deposits. The cost of this successful campaign increased advertising and promotion expense $185,000 in 2003 compared to
2002.



Income Tax Expense.  Income tax expense for the year ended December 31, 2003 was $3.3 million compared to $3.4 million for the year ended December 31, 2002.  The decrease was

due primarily to decreased taxable income partially offset by reduced tax credits on low income housing projects which expired in 2003. The effective tax rate increased from 28.5% to 29.3% when comparing 2002 and 2003, respectively.





Comparison of Results of Operations for Years Ended December 31, 2002 and 2001.



General. Net income for the year ended December 31, 2002 increased $400,000 or 4.9% to $8.5 million compared to $8.1 million for the year ended December 31, 2001.



Net Interest Income.  Interest income decreased $4.5 million, or 8.2% to $50.4 million for the year ended December 31, 2002 from $54.9 million for the year ended December 31, 2001.  Interest expense decreased $6.0 million, or 20.5% from $29.1 million for the year ended December 31, 2001 to $23.1 million for the year ended December 31, 2002.  As a result, net interest income for the year ended December 31, 2002 increased $1.5 million, or 5.7% compared to 2001.  The average interest rate spread increased from 3.22% for the year ended December 31, 2001 to 3.59% for the year ended December 31, 2002.



Interest Income.  The decrease in interest income during the year ended December 31, 2002 was due to a reduction in the average yield on our earning assets from 7.80% in 2001 to 7.09% in 2002 as a result of lower market interest rates.  This decrease was partially offset by a $6.9 million increase in average earning assets from $704.5 million during 2001 to $711.4 million during 2002.  The majority of this increase was in average loans receivable, which increased $5.6 million from $656.6 in 2001 to $662.2 million in 2002.  The average yield on these loans decreased 63 basis points from 7.92% in 2001 to 7.29% in 2002.



Interest Expense.  The decrease in interest expense was due to a 108 basis point reduction in the cost of our average interest bearing liabilities from 4.58% in 2001 to 3.50% in 2002 as a result of lower market interest rates.  This decrease was partially offset by a $24.9 million increase in average interest bearing liabilities from $635.5 million in 2001 to $660.5 million in 2002.  The majority of this increase was in average deposits, which increased $16.7 million from $533.4 million in 2001 to $550.1 million in 2002.  The average cost on these deposits decreased 121 basis points from 4.37% in 2001 to 3.16% in 2002.



Provision for Loan Losses.  For the year ended December 31, 2002, the provision for loan losses amounted to $1.7 million compared to $1.3 million in 2001.  In each period, the provision for loan losses was based on an analysis of individual loans, prior and current year loss experience, overall growth in the portfolio, the change in the portfolio mix and current economic conditions in our markets.  The reasons for the increase in the provision for loan losses in 2002 compared to 2001 were primarily due to continued poor economic conditions in some of our markets and a change in the loan portfolio mix with growth in the consumer and commercial loan portfolios and a reduction in the one-to four- family residential mortgage loan portfolio.



Other Income.  Other income for the year ended December 31, 2002 decreased $154,000 from $6.1 million the year ended December 31, 2001 to$5.9 million for the year-end December 31, 2002.  This decrease was due primarily to an increase in our equity in losses on limited

partnerships, which own various low-income housing projects that provide federal income tax credits to its equity owners.  Our share of the losses was $517,000 for the year ended December 31, 2002 compared to $249,000 the previous year.  Another factor affecting the change in other income was a $159,000 increase in service fee income.  The increase in service fee income included a $117,000 increase or 24.5% in electronic transaction fees from $476,000 in 2001 to $593,000 in 2002.  This is indicative of the increased customer usage of ATM/Debit
cards.



Other Expense.  Total operating expenses increased $181,000 from $19.5 million for the year ended December 31, 2001 to $19.7 million for 2002.  Salaries and employee benefits were $12.5 million for the year ended December 31, 2002 compared to $12.3 million for the 2001 period, an increase of $166,000 or 1.35%.  The changes in salaries and benefits included a $357,000 increase in health insurance premium costs, increased ESOP expense due to the increase in the market value of our stock, staffing increases in the lending area due to increased activity, and annual pay increases.  These increases were partially offset by a $230,000 reduction in incentive bonus from 2001 to 2002, and a $619,000 reduction in Recognition and Retention Plan (RRP) cost from $1.4 million in 2001 to $768,000 in 2002.  Net occupancy expenses
increased $131,000 due primarily to increased real estate taxes in 2002 compared to 2001.



Income Tax Expense.  Income tax expense for the year ended December 31, 2002 was $3.4 million compared to $3.1 million for the year ended December 31, 2001.  The increase was due primarily to increased taxable income.





Liquidity and Commitments



Mutual Federal is required to maintain adequate levels of investments that qualify as liquid assets under Office of Thrift Supervision regulations to ensure the institution's safe and sound operations.  Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans.  Historically, we have maintained liquid assets at levels above the minimum requirements imposed by Office of Thrift Supervision regulations and above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows.  Cash flow projections are regularly reviewed and updated to ensure that adequate liquidity is maintained.  At December 31, 2003, our liquidity ratio, which is our liquid assets as a percentage of net
withdrawable savings deposits and current borrowings, was 7.93 %.



Our liquidity, represented by cash and cash equivalents and investment securities, is a product of our operating, investing and financing activities.  Our primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations.  While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.  In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.
 We also generate cash through borrowings.  We utilize Federal Home Loan Bank

advances to leverage our capital base and provide funds for our lending and investment activities, and to enhance out interest rate risk management.



Liquidity management is both a daily and long-term function of business management.  Excess liquidity is generally invested in short-term investments such as overnight deposits or U.S. Agency securities.  We use our sources of funds primarily to meet our ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, to fund loan commitments and to maintain our portfolio of mortgage-backed securities and investment securities.  At December 31, 2003, the total approved loan origination commitments outstanding amounted to $24.7 million.  At the same date, the unadvanced portion of construction loans was $7.5 million.  At December 31, 2003, unused lines of credit totaled $39.6 million and outstanding letters of credit totaled $7.2 million.  As of December 31, 2003, certificates of deposit
scheduled to mature in one year or less totaled $224.6 million, and investment and mortgage-backed securities scheduled to mature in one year or less totaled $12.2 million.  Based on historical experience, management believes that a significant portion of maturing deposits will remain with us.  We anticipate that we will continue to have sufficient funds, through deposits and borrowings, to meet our current commitments. The following table presents our contractual obligations (excluding deposit products).



|                        |  | Payments due by period
|----------------------- |  | ----------------------
|                        |  | Total                 
|Contractual Obligations |  |                       
|                        |  |                       
|FHLB Advances           |  | $134,592              
|Notes Payable           |  | 2,511                 
|                        |  |                       
|Total                   |  | $137,103              
|                        |  |                       



The Company's purchase obligations have no material impact on its cash flow or liquidity and, accordingly, have not been included in the above table.



Capital



Consistent with our goals to operate a sound and profitable financial organization, Mutual Federal actively strives to remain a well capitalized institution in accordance with regulatory standards.  Total stockholders' equity of MutualFirst Financial, Inc. was $97.5 million at December 31, 2003, or 11.8% of total assets on that date.  As of December 31, 2003, Mutual Federal exceeded all capital requirements of the Office of Thrift Supervision, with regulatory capital ratios as follows:  core capital, 11.32%; Tier I risk-based capital, 15.83%; and total risk-based capital, 16.97%.  The regulatory capital requirements to be considered well capitalized are 5.0%, 6.0% and 10.0%, respectively.



Impact of New Accounting Standards



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.  This statement clarifies reporting of contracts as either derivatives or hybrid instruments.  MutualFirst Financial, Inc. has determined that all derivatives or hybrid instruments covered under this statement have been properly reported under SFAS No. 149.



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities.  FIN 46 provides guidance with respect to variable interest entities and when the assets, liabilities, non-controlling interest, and results of operations of a variable interest entity need to be included in a company's consolidated financial  statements.  A variable interest entity exists when either the total equity investment at risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack one of three characteristics associated with owning a controlling financial interest.  Those characteristics are the direct or indirect ability to make decisions about an
entity's activities through voting rights or similar rights, the obligation to absorb the expected losses of an entity if they occur, and the right to receive the expected residual returns of the entity if they occur.



FIN No. 46 was effective immediately for new entities that were created or acquired after January 31, 2003.  The effective date for entities in which MutualFirst Financial had a variable interest prior to February 1, 2003 was originally July 1, 2003 but the FASB delayed the effective date for these entities to December 15, 2003.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-based Compensation  Transition and Disclosure, which provides guidance for transition from the intrinsic value method of accounting for stock-based compensation under Accounting Principles Board (APB) Opinion No. 25 to SFAS No. 123's fair value method of accounting, if a company so elects.  MutualFirst Financial applies APB Opinion No. 25 and related Interpretations in accounting for the stock option plan.  Accordingly, no compensation costs have been recognized, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.  Had compensation cost for MutualFirst Financial's stock
option plan been recorded based on the fair value at the grant dates for awards under the plan consistent with the method prescribed by SFAS No. 123,  net income and net income per share would have been adjusted to the proforma amounts indicated in Note 3.



In November 2002, FASB Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others was issued.  FIN 45 requires the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued.  It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.  The most significant FIN 45 instruments of the MutualFirst Financial are standby letters of credit.  MutualFirst Financial has determined that its standby letters of credit obligations under FIN 45
are not material for disclosure.





Critical Accounting Policies



The notes to the consolidated financial statements contain a summary ofMutualfirst's significant accounting policies presented on pages -- to -- of the Annual Report to Shareholders for the year ended December 31, 2003.  Certain of these policies are important to the portrayal ofMutualFirst'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 real estate held for development and the valuation of intangible assets.



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



Allowance for Loan Losses



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



Foreclosed Assets



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



Mortgage Servicing Rights



Mortgage servicing rights (MSRs) associated with loans originated and sold, where servicing is retained, are capitalized and included in other intangible assets in the consolidated balance sheet.  The value of the capitalized servicing rights represents the present value of the future servicing fees arising from the right to service loans in the portfolio.  Critical accounting policies for MSRs relate to the initial valuation and subsequent impairment tests.  The methodology used to determine the valuation of MSRs requires the development and use of a number of estimates, including anticipated principal amortization and prepayments of that principal balance.  Events that may significantly affect the estimates used are changes in interest
rates, mortgage loan prepayment speeds and the payment performance of the underlying loans.

The carrying value of the MSRs is periodically reviewed for impairment based on a determination of fair value.  For purposes of measuring impairment, the servicing rights are compared to a valuation prepared based on a discounted cash flow methodology, utilizing current prepayment speeds and discount rates.  Impairment, if any, is recognized through a valuation allowance and is recorded as amortization of intangible assets.







Intangible Assets



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





Impact of Inflation



Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles.  The principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.



Our primary assets and liabilities are monetary in nature.  As a result, interest rates affect our performance more than general levels of inflation.  Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation.  In a period of rapidly rising interest rates, the liquidity and maturity structure of our assets and liabilities are critical to the maintenance of acceptance performance levels.



The principal effect of inflation, as distinct from levels of interest rates, on earnings is in the area of non-interest expense.  Expense items such as employee compensation, employee benefits and occupancy and equipment cost may increase because of inflation.  Inflation also may increase the dollar value of the collateral securing loans that we have made.  We are unable to determine the extent to which properties securing our loans have appreciated in dollar value due to inflation.

Selected Quarterly Financial
Information Quarter
Ended
     Interest
Income
     Interest
Expense
     Net
Interest
Income
     Provision
for
Loan
Losses
     Net
Income
     Basic
Earnings
per
Common
Share
     Diluted
Earnings
per
Common
Share(In thousands)2003March
     $11,791
        
     $4,964
        
     $6,827
        
     $375
        
     $2,068
        
     $0.42
        
     $0.40June
     11,737
        
     4,828
        
     6,909
        
     375
        
     2,390
        
     0.49
        
     0.47September
     11,532
        
     4,696
        
     6,836
        
     325
        
     1,983
        
     0.41
        
     0.39December
     11,382
        
     4,611
        
     6,771
        
     375
        
     1,621
        
     0.33
        
     0.32Total
     $46,442
        
     $19,099
        
     $27,343
        
     $1,450
        
     $8,062
        
     1.64
        
     1.592002March
     $12,755
        
     $6,125
        
     $6,630
        
     $587
        
     $1,884
        
     $0.32
        
     $0.32June
     12,716
        
     5,888
        
     6,828
        
     375
        
     2,013
        
     0.35
        
     0.34September

     12,550
        
     5,709
        
     6,841
        
     375
        
     2,326
        
     0.44
        
     0.43December
     12,418
        
     5,396
        
     7,022
        
     375
        
     2,257
        
     0.44
        
     0.43Total
     $50,439
        
     $23,118
        
     $27,321
        
     $1,712
        
     $8,480
        
     1.55
        
     1.51


***MutualFirst*****Financial, Inc.**

**Accountants' Report and Consolidated Financial Statements**

**December 31, 2003, 2002 and 2001**

***MutualFirst* Financial, Inc.Consolidated Balance Sheets
December 31, 2003 and 2002**

|                                         | **2003**                                                             | **2002**                              
|---------------------------------------- | -------------------------------------------------------------------- | --------------------------------------
|**Assets**                               |                                                                      |                                       
|                                         | Cash and due from banks                                              | $  21,073,754                         
|                                         | Interest-bearing demand deposits                                     | 1,994,032                             
|                                         |                                                                      |                                       
|                                         | Investment securities available for sale                             | 33,471,986                            
|                                         | Loans held for sale                                                  | 1,975,277                             
|                                         | Loans, net of allowance for loan losses of $6,779,218 and $6,285,959 | 703,980,796                           
|                                         | Premises and equipment                                               | 10,070,804                            
|                                         | Federal Home Loan Bank stock                                         | 7,264,200                             
|                                         | Investment in limited partnerships                                   | 5,087,752                             
|                                         | Deferred income tax benefit                                          | 3,846,184                             
|                                         | Cash value of life insurance                                         | 26,140,357                            
|                                         | Other assets                                                         | 8,885,696                             
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       
|**Liabilities and Stockholders' Equity** |                                                                      |                                       
|                                         | **Liabilities**                                                      |                                       
|                                         |                                                                      | Deposits                              
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       
|                                         | Commitments and Contingencies                                        |                                       
|                                         |                                                                      |                                       
|                                         | Stockholders' Equity                                                 |                                       
|                                         |                                                                      | Preferred stock, $.01 par value       
|                                         |                                                                      |                                       
|                                         |                                                                      | Common stock, $.01 par value          
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       
|                                         |                                                                      | Additional paid-in capital            
|                                         |                                                                      | Retained earnings                     
|                                         |                                                                      | Accumulated other comprehensive income
|                                         |                                                                      | Unearned benefit plan shares          
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       
|                                         |                                                                      |                                       

***MutualFirst* Financial, Inc.
Consolidated Statements of Income
Years Ended December 31, 2003, 2002 and 2001**

|                                                        |                                                                         |                                    | **2003**         | **2002**         | **2001**  
|------------------------------------------------------- | ----------------------------------------------------------------------- | ---------------------------------- | ---------------- | ---------------- | ----------
|**Interest and Dividend Income**                        |                                                                         |                                    |                 
|                                                        | Loans receivable                                                        | $44,880,960                        | $48,246,747      | $52,018,175     
|                                                        | Investment securities                                                   | 1,130,134                          | 1,593,708        | 2,212,568       
|                                                        | Federal Home Loan Bank stock                                            | 360,153                            | 423,963          | 519,859         
|                                                        | Deposits with financial institutions                                    | 70,820                             | 175,042          | 189,272         
|                                                        |                                                                         | Total interest and dividend income | 46,442,067       | 50,439,460       | 54,939,874
|                                                        |                                                                         |                                    |                 
|**Interest Expense**                                    |                                                                         |                                    |                 
|                                                        | Deposits                                                                | 13,671,004                         | 17,394,703       | 23,314,477      
|                                                        | Federal Home Loan Bank advances                                         | 5,365,496                          | 5,652,344        | 5,719,922       
|                                                        | Other interest expense                                                  | 62,424                             | 71,528           | 46,980          
|                                                        |                                                                         | Total interest expense             | 19,098,924       | 23,118,575       | 29,081,379
|                                                        |                                                                         |                                    |                 
|**Net Interest Income**                                 | 27,343,143                                                              | 27,320,885                         | 25,858,495      
|                                                        | Provision for loan losses                                               | 1,450,000                          | 1,712,483        | 1,281,648       
|**Net Interest Income After Provision for Loan Losses** | 25,893,143                                                              | 25,608,402                         | 24,576,847      
|                                                        |                                                                         |                                    |                 
|**Other Income**                                        |                                                                         |                                    |                 
|                                                        | Service fee income                                                      | 2,926,705                          | 2,784,744        | 2,625,649       
|                                                        | Net realized gains (losses) on sales of available-for-sale
  securities | 6,979                              | (2,763)          | 46,241          
|                                                        | Commissions                                                             | 745,427                            | 790,086          | 750,524         
|                                                        | Equity in losses of limited partnerships                                | (323,450)                          | (516,509)        | (249,300)       
|                                                        | Net gains on sales of loans                                             | 1,356,593                          | 1,368,033        | 1,304,077       
|                                                        | Net servicing fees (expense)                                            | (382,620)                          | 65,470           | 84,268          
|                                                        | Increase in cash value of life insurance                                | 1,343,542                          | 1,208,217        | 1,176,000       
|                                                        | Other income                                                            | 301,843                            | 250,658          | 364,332         
|                                                        |                                                                         | Total other income                 | 5,975,019        | 5,947,936        | 6,101,791 
|                                                        |                                                                         |                                    |                 
|**Other Expenses**                                      |                                                                         |                                    |                 
|                                                        | Salaries and employee benefits                                          | 13,097,034                         | 12,453,962       | 12,288,117      
|                                                        | Net occupancy expenses                                                  | 1,170,121                          | 1,104,617        | 973,568         
|                                                        | Equipment expenses                                                      | 1,024,196                          | 891,202          | 906,636         
|                                                        | Data processing fees                                                    | 606,531                            | 760,475          | 780,360         
|                                                        | Advertising and promotion                                               | 639,859                            | 455,143          | 516,487         
|                                                        | Automated teller machine expense                                        | 492,176                            | 492,766          | 524,886         
|                                                        | Other expenses                                                          | 3,436,318                          | 3,542,143        | 3,529,753       
|                                                        |                                                                         | Total other expenses               | 20,466,235       | 19,700,308       | 19,519,807
|                                                        |                                                                         |                                    |                 
|**Income Before Income Tax**                            | 11,401,927                                                              | 11,856,030                         | 11,158,831      
|                                                        | Income tax expense                                                      | 3,340,415                          | 3,376,500        | 3,078,700       
|                                                        |                                                                         |                                    |                 
|**Net Income**                                          | $  8,061,512                                                            | $  8,479,530                       | $  8,080,131    
|                                                        |                                                                         |                                    |                  |                  |           
|**Earnings Per Share**                                  |                                                                         |                                    |                 
|                                                        | Basic                                                                   | $           1.64                   | $           1.55 | $           1.16
|                                                        | Diluted                                                                 | 1.59                               | 1.51             | 1.16            

***MutualFirst***Financial, Inc.Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2003, 2002 and 2001

|                                |                                 |                                                                             |              |             |              |              | **Accumulated**   | **Unearned** |          
|------------------------------- | ------------------------------- | --------------------------------------------------------------------------- | ------------ | ----------- | ------------ | ------------ | ----------------- | ------------ | ---------
|                                |                                 |                                                                             |              |             |              |              | **Other**         | **Benefit**  |          
|                                |                                 |                                                                             |              | **Common**  | **Paid-in**  | **Retained** | **Comprehensive** | **Plan**     |          
|                                |                                 |                                                                             |              | **Stock**   | **Capital**  | **Earnings** | **Income**        | **Shares**   | **Total**
|**Balances, January 1, 2001**   | $83,794                         | $84,553,285                                                                 | $49,380,571  | $55,528     | $(4,131,786) | $129,941,392
|                                | Comprehensive income            |                                                                             |              |             |              |              |                  
|                                |                                 | Net income                                                                  |              |             | 8,080,131    |              |                   | 8,080,131   
|                                |                                 | Other comprehensive income, net
  of tax - unrealized gains on  securities  |              |             |              | 300,481      |                   | 300,481     
|                                | Comprehensive income            |                                                                             |              |             |              |              | 8,380,612        
|                                | Cash dividends ($.32 per share) |                                                                             |              | (2,265,008) |              |              | (2,265,008)      
|                                | Exercise of stock options       | 114                                                                         | 53,836       |             |              |              | 53,950           
|                                | Stock repurchased               | (19,060)                                                                    | (28,205,313) |             |              |              | (28,224,373)     
|                                | RRP shares granted              | 2,090                                                                       | 3,028,410    |             |              | (3,030,500)  |                  
|                                | RRP shares earned               |                                                                             |              |             |              | 1,394,099    | 1,394,099        
|                                | ESOP shares earned              |                                                                             | 145,666      |             |              | 317,840      | 463,506          
|                                |                                 |                                                                             |              |             |              |              |                  
|**Balances, December 31, 2001** | 66,938                          | 59,575,884                                                                  | 55,195,694   | 356,009     | (5,450,347)  | 109,744,178 
|                                | Comprehensive income            |                                                                             |              |             |              |              |                  
|                                |                                 | Net income                                                                  |              |             | 8,479,530    |              |                   | 8,479,530   
|                                |                                 | Other comprehensive income, net
  of tax - unrealized gains on  securities  |              |             |              | 108,443      |                   | 108,443     
|                                | Comprehensive income            |                                                                             |              |             |              |              | 8,587,973        
|                                | Cash dividends ($.37 per share) |                                                                             |              | (1,895,529) |              |              | (1,895,529)      
|                                | Exercise of stock options       | 33                                                                          | 39,767       |             |              |              | 39,800           
|                                | Stock repurchased               | (11,740)                                                                    | (21,172,202) |             |              |              | (21,183,942)     
|                                | RRP shares earned               |                                                                             |              |             |              | 767,500      | 767,500          
|                                | Tax benefit on RRP shares       |                                                                             | 72,120       |             |              |              | 72,120           
|                                | ESOP shares earned              |                                                                             | 267,186      |             |              | 317,840      | 585,026          
|                                |                                 |                                                                             |              |             |              |              |                  
|**Balances, December 31, 2002** | 55,231                          | 38,782,755                                                                  | 61,779,695   | 464,452     | (4,365,007)  | 96,717,126  
|                                | Comprehensive income            |                                                                             |              |             |              |              |                  
|                                |                                 | Net income                                                                  |              |             | 8,061,512    |              |                   | 8,061,512   
|                                |                                 | Other comprehensive income, net
  of tax - unrealized losses on  securities |              |             |              | (230,714)    |                   | (230,714)   
|                                | Comprehensive income            |                                                                             |              |             |              |              | 7,830,798        
|                                | Cash dividends ($.42 per share) |                                                                             |              | (2,021,410) |              |              | (2,021,410)      
|                                | Exercise of stock options       | 719                                                                         | 973,638      |             |              |              | 974,357          
|                                | Stock repurchased               | (3,264)                                                                     | (2,768,683)  | (4,410,423) |              |              | (7,182,370)      
|                                | RRP shares granted              | 246                                                                         | 630,579      |             |              | (630,825)    |                  
|                                | RRP shares earned               |                                                                             |              |             |              | 450,000      | 450,000          
|                                | ESOP shares earned              |                                                                             | 433,791      |             |              | 317,840      | 751,631          
|                                |                                 |                                                                             |              |             |              |              |                  
|**Balances, December 31, 2003** | $52,932                         | $38,052,080                                                                 | $63,409,374  | $233,738    | $(4,227,992) | $97,520,132 

***MutualFirst* Financial, Inc.Consolidated Statements of Cash Flows
Years Ended December 31, 2003, 2002 and 2001**

|                                                 |                                                                         |                                                                   |                                                     | **2003**      | **2002**     | **2001**    
|------------------------------------------------ | ----------------------------------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------- | ------------- | ------------ | ------------
|**Operating Activities**                         |                                                                         |                                                                   |                                                    
|                                                 | Net income                                                              | $8,061,512                                                        | $8,479,530                                          | $8,080,131   
|                                                 | Items not requiring (providing) cash                                    |                                                                   |                                                     |              
|                                                 |                                                                         | Provision for loan losses                                         | 1,450,000                                           | 1,712,483     | 1,281,648   
|                                                 |                                                                         | ESOP shares earned                                                | 751,631                                             | 585,026       | 463,506     
|                                                 |                                                                         | RRP shares earned                                                 | 450,000                                             | 767,500       | 1,394,099   
|                                                 |                                                                         | Depreciation and amortization                                     | 2,476,012                                           | 2,790,952     | 3,336,680   
|                                                 |                                                                         | Deferred income tax                                               | 417,241                                             | 363,338       | 650,457     
|                                                 |                                                                         | Loans originated for sale                                         | (45,647,544)                                        | (55,029,628)  | (66,040,391)
|                                                 |                                                                         | Proceeds from sales of loans held for sale                        | 52,364,678                                          | 63,481,603    | 59,698,638  
|                                                 |                                                                         | Gains on sales of loans held for sale                             | (1,356,593)                                         | (1,368,033)   | (1,304,077) 
|                                                 | Change in                                                               |                                                                   |                                                     |              
|                                                 |                                                                         | Interest receivable                                               | 7,153                                               | 495,559       | 616,615     
|                                                 |                                                                         | Other assets                                                      | 243,754                                             | (175,615)     | 534,165     
|                                                 |                                                                         | Interest payable                                                  | 164,490                                             | (343,963)     | (12,512)    
|                                                 |                                                                         | Other liabilities                                                 | (902,369)                                           | 940,074       | 426,810     
|                                                 |                                                                         | Cash value of life insurance                                      | (701,049)                                           | (1,208,217)   | (1,176,000) 
|                                                 | Other adjustments                                                       | 1,265,262                                                         | 642,353                                             | 1,325,092    
|                                                 |                                                                         |                                                                   | Net cash provided by operating activities           | 19,044,178    | 22,132,962   | 9,274,861   
|                                                 |                                                                         |                                                                   |                                                    
|**Investing Activities**                         |                                                                         |                                                                   |                                                    
|                                                 | Purchases of securities available for sale                              | (15,603,309)                                                      | (30,441,236)                                        | (11,517,408) 
|                                                 | Proceeds from maturities and paydowns of securities available for
 sale | 11,451,638                                                        | 14,800,015                                          | 7,331,030    
|                                                 | Proceeds from sales of securities available for sale                    | 12,172,309                                                        | 5,000,000                                           | 10,261,210   
|                                                 | Proceeds from maturities and paydowns of securities held to maturity    | ---                                                               | ---                                                 | 7,110,618    
|                                                 | Proceeds from sales of securities held to maturity                      | ---                                                               | ---                                                 | 1,499,928    
|                                                 | Net change in loans                                                     | (67,000,877)                                                      | (13,717,276)                                        | (1,992,175)  
|                                                 | Purchases of premises and equipment                                     | (1,894,557)                                                       | (1,394,578)                                         | (802,172)    
|                                                 | Proceeds from real estate owned sales                                   | 1,733,353                                                         | 1,081,651                                           | 184,606      
|                                                 | Other investing activities                                              | (21,979)                                                          | (129,524)                                           | (11,988)     
|                                                 |                                                                         |                                                                   | Net cash provided by (used in) investing activities | (59,163,422)  | (24,800,948) | 12,063,649  
|                                                 |                                                                         |                                                                   |                                                    
|**Financing Activities**                         |                                                                         |                                                                   |                                                    
|                                                 | Net change in                                                           |                                                                   |                                                     |              
|                                                 |                                                                         | Noninterest-bearing, interest-bearing demand and savings deposits | 7,062,223                                           | 1,325,377     | 11,977,689  
|                                                 |                                                                         | Certificates of deposits                                          | 21,936,224                                          | 10,160,395    | 12,190,945  
|                                                 | Repayment of note payable                                               | (435,487)                                                         | (437,470)                                           | (443,824)    
|                                                 | Proceeds from FHLB advances                                             | 105,000,000                                                       | 46,280,000                                          | 192,200,000  
|                                                 | Repayment of FHLB advances                                              | (85,880,184)                                                      | (38,429,745)                                        | (197,327,508)
|                                                 | Net change in advances by borrowers for taxes and insurance             | 113,720                                                           | (128,616)                                           | 11,235       
|                                                 | Stock repurchased                                                       | (7,182,370)                                                       | (21,183,942)                                        | (28,224,373) 
|                                                 | Proceeds from stock options exercised                                   | 974,357                                                           | 39,800                                              | 53,950       
|                                                 | Cash dividends                                                          | (2,021,410)                                                       | (1,895,529)                                         | (2,265,008)  
|                                                 |                                                                         |                                                                   | Net cash provided by (used in) financing activities | 39,567,073    | (4,269,730)  | (11,826,894)
|                                                 |                                                                         |                                                                   |                                                    
|**Net Change in Cash and Cash Equivalents**      | (552,171)                                                               | (6,937,716)                                                       | 9,511,616                                          
|                                                 |                                                                         |                                                                   |                                                    
|**Cash and Cash Equivalents, Beginning of Year** | 23,619,957                                                              | 30,557,673                                                        | 21,046,057                                         
|                                                 |                                                                         |                                                                   |                                                    
|**Cash and Cash Equivalents, End of Year**       | $23,067,786                                                             | $23,619,957                                                       | $30,557,673                                        
|                                                 |                                                                         |                                                                   |                                                    
|**Additional Cash Flows Information**            |                                                                         |                                                                   |                                                    
|                                                 | Interest paid                                                           | $19,263,414                                                       | $23,462,538                                         | $29,093,891  
|                                                 | Income tax paid                                                         | 3,191,271                                                         | 3,089,069                                           | 1,505,000    
|                                                 | Transfers from loans to foreclosed real estate                          | 1,220,234                                                         | 1,715,157                                           | 684,649      
|                                                 | Loans transferred to held for sale                                      | ---                                                               | 15,459,187                                          | ---          
|                                                 | Loans transferred from held for sale                                    | ---                                                               | 11,559,158                                          | ---          
|                                                 | Mortgage servicing rights capitalized                                   | 514,893                                                           | 524,534                                             | 581,773      

***MutualFirst* Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

|**Note 1:     Nature of Operations and Summary of Significant Accounting Policies**
|-----------------------------------------------------------------------------------
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   

***MutualFirst***Financial, Inc.
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

| | **Loans held for sale**are carried at the lower of aggregate cost or market.  Market is determined using the
aggregate method.  Net unrealized losses, if any, are recognized through a valuation allowance by charges
to income based on the difference between estimated sales proceeds and aggregate cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | **Loans** are carried at the principal amount outstanding.  A loan is impaired when, based on current information or events, it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement.  Payments with insignificant delays not exceeding 90 days are not considered impaired.  Certain nonaccrual and substantially delinquent loans may be considered to be impaired.  The Company considers its investment in one-
to-
four family residential loans and consumer loans to be homogeneous and therefore excluded from separate identification for evaluation of impairment.  Interest income is accrued on the principal balances of loans.  The accrual of interest on impaired and nonaccrual loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due.  When interest accrual is discontinued, all unpaid accrued interest is reversed when considered uncollectible.  Interest income is subsequently recognized only to the extent cash payments are received.  Certain loan fees and direct costs are being deferred and amortized as an adjustment of yield on the loans over the contractual maturity of the loans.
| | **Allowance for loan losses**is maintained to absorb loan losses based on management's continuing review and evaluation of the loan portfolio and its judgment as to the impact of economic conditions on the portfolio.  The evaluation by management includes consideration of past loss experience, changes in the composition of the portfolio, the current condition and amount of loans outstanding, and the probability of collecting all amounts due.  Impaired loans are measured by the present value of expected future cash flows, or the fair value of the collateral of the loan, if collateral dependent.  The allowance is increased by the provision for loan losses, which is charged against current period operating results.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.                                                                                                                                                                                                                                                                                                                                              
| | 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. Management believes that as of December 31, 2003, the allowance for loan losses is adequate based on information currently available.  A worsening or protracted economic decline in the areas within which the Bank operates would increase the likelihood of additional losses due to credit and market risks and could create the need for additional loss reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | **Premises and equipment** are carried at cost net of accumulated depreciation.  Depreciation is computed using the straight-line method based principally on the estimated useful lives of the assets which range from 3 to 50 years.  Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized.  Gains and losses on dispositions are included in current operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | **Federal Home Loan Bank stock** is a required investment for institutions that are members of the Federal Home Loan Bank system.  The required investment in the common stock is based on a predetermined formula and is carried at cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

| | **Mortgage servicing rights** on originated loans that have been sold are capitalized by allocating the total cost of the mortgage loans between the mortgage servicing rights and the loans based on their relative fair values.  Capitalized servicing rights are amortized in proportion to and over the period of estimated servicing revenues.  Impairment of mortgage servicing rights is based on the fair value of those rights.  Fair values are estimated using discounted cash flows based on a current market interest rate.  For purposes of measuring impairment, the rights are stratified based on the predominant risk characteristics of the underlying loans.  The predominant characteristic currently used for stratification is type of loan. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights for a stratum exceed their fair values.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | **Investment in limited partnerships** is recorded primarily on the equity method of accounting.  Losses due to impairment are recorded when it is determined that the investment no longer has the ability to recover its carrying amount.  The benefits of low income housing tax credits associated with the investment are accrued when earned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | **Income tax** in the consolidated statements of income includes deferred income tax provisions or benefits for all significant temporary differences in recognizing income and expenses for financial reporting and income tax purposes.  The Company files consolidated income tax returns with the Bank.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | **Earnings per share** is computed based upon the weighted-average common and common equivalent shares outstanding during each year.  Unearned ESOP shares and RRP shares which have not vested have been excluded from the computation of average shares outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | **Reclassifications** of certain amounts in the 2002 and 2001 consolidated financial statements have been made to conform to the 2003 presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | **Stock Options**are accounted for under the recognition and measurement principals of APB Opinion No.
25, *Accounting for Stock Issued to Employees*, and related interpretations.  No stock-
based employee
compensation cost is reflected in net income, as all options granted under the plan had an exercise price
equal to the market value of the underlying common stock on the grant date.  The following table
illustrates the effect on net income and earnings per share if the Company had applied the fair value
provisions of Statement of Financial Accounting Standards No. 123, *Accounting for Stock-
Based
Compensation*, to stock-
based employee compensation.                                                                                                                                                                                                                            

| |  |                                                                                                                |                        | **2003** | **2002** | **2001**
| |  | -------------------------------------------------------------------------------------------------------------- | ---------------------- | -------- | -------- | --------
| |  |                                                                                                                |                        |          |          |         
| |  | Net income, as reported                                                                                        | $8,062                 | $8,480   | $8,080  
| |  | Less:  Stock-
based employee compensation cost
  determined under the fair value method, net of
  income taxes | (226)                  | (605)    | (292)   
| |  |                                                                                                                |                        |          |         
| |  | Pro forma net income                                                                                           | $7,836                 | $7,875   | $7,788  
| |  |                                                                                                                |                        |          |         
| |  | Earnings per share                                                                                             |                        |          |         
| |  |                                                                                                                | Basic -
 as reported   | $  1.64  | $  1.55  | $  1.16 
| |  |                                                                                                                | Basic -
 pro forma     | 1.59     | 1.44     | 1.12    
| |  |                                                                                                                | Diluted -
 as reported | 1.59     | 1.51     | 1.16    
| |  |                                                                                                                | Diluted -
 pro forma   | 1.54     | 1.41     | 1.12    

***MutualFirst* Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

|**Note 2:     Restriction on Cash**                     
|--------------------------------------------------------
|                                                        
|                                                        
|**Note 3:     Investment Securities Available for Sale**

| |                                     | **2003**          
| | ----------------------------------- | ------------------
| |                                     | **AmortizedCost** 
| |                                     |                   
| | Mortgage-
backed securities         | $  3,900          
| | Collateralized mortgage obligations | 8,374             
| | Federal agencies                    | 3,044             
| | Small Business Administration       | 214               
| | Corporate obligations               | 9,756             
| | Marketable equity securities        | 7,645             
| | Municipal obligation                | 150               
| | Total investment securities         | $33,083           
|
| |                                     | **2002**          
| |                                     | **Amortized
Cost**
| | Mortgage-
backed securities         | $6,615            
| | Collateralized mortgage obligations | 9,406             
| | Federal agencies                    | 1,997             
| | Small Business Administration       | 241               
| | Corporate obligations               | 7,723             
| | Marketable equity securities        | 15,456            
| | Municipal obligation                | 150               
| | Total investment securities         | $41,588           

| | Marketable equity securities consist of shares in mutual funds which invest in government obligations and
mortgage-
backed securities.
| | --------------------------------------------------------------------------------------------------------------------------------------
|
|

***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

| | 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 December 31, 2003, was $8,247,000, which is approximately 25 percent of the Company's available-for-sale-investment-portfolio. These declines primarily resulted from recent increases in market interest rates and failure of certain investments to maintain consistent credit quality ratings or meet projected earnings targets.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.                                                                                                                                                                                                                                                                      
| | Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-
than-
temporary impairment is identified.                                                                                                                                                                                                                                                                                 
| | The following table shows 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 December 31, 2003:                                                                                                                                                                                                                                                                                       

| |                                              | Less than 12 Months | 12 Months or More  | Total     
| | -------------------------------------------- | ------------------- | ------------------ | ----------
| | Description of
Securities                    | Fair

Value         | Unrealized

Losses | Fair
Value
| | Mortgage-
backed    securities               | $732                | $(5)               | $-
-      
| | Marketable equity    securities              | 6,200               | (38)               | 1,315     
| | Total temporarily impaired
       securities | $6,932              | $(43)              | $1,315    

| | The amortized cost and fair value of securities available for sale at December 31, 2003, 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| |                                     | **2003**          
| | ----------------------------------- | ------------------
| |                                     | **Amortized
Cost**
| |                                     |                   
| | Within one year                     | $  4,624          
| | One to five years                   | 8,216             
| | Five to ten years                   | 60                
| | After ten years                     | 50                
| |                                     | 12,950            
| | Mortgage-
backed securities         | 3,900             
| | Collateralized mortgage obligations | 8,374             
| | Small Business Administration       | 214               
| | Marketable equity securities        | 7,645             
| | Totals                              | $33,083           

| | The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $7,504,000 at December 31, 2003, and $14,928,000 at December 31, 2002.                                                                                                        
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Proceeds from sales of securities available for sale during 2003, 2002 and 2001 were $12,172,000, $5,000,000 and $10,261,000.  Gross gains of $30,000, $3,000 and $93,000 and gross losses of $23,000, $6,000 and $69,000 were recognized on those sales in 2003, 2002 and 2001.            
|
| | Proceeds from sales of securities held to maturity during 2001 were $1,500,000.  Gross gains of $28,000 and gross losses of $6,000 were recognized on those sales in 2001.  The remaining balance of held-to-maturity securities totaling $2,290,000 was reclassified as available for sale.
|

***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 4:     Loans and Allowance**

| |       |                                               |                              | **2003** | **2002**
| | ----- | --------------------------------------------- | ---------------------------- | -------- | --------
| | Loans |                                               |                             
| |       | Real estate loans                             |                              |         
| |       |                                               | One-
to-
four family         | $391,476 | $366,556
| |       |                                               | Multi family                 | 5,353    | 8,211   
| |       |                                               | Commercial                   | 65,430   | 54,252  
| |       |                                               | Construction and development | 17,860   | 14,853  
| |       |                                               |                              | 480,119  | 443,872 
| |       | Consumer loans                                |                              |         
| |       |                                               | Auto                         | 40,497   | 32,997  
| |       |                                               | Home equity                  | 25,401   | 21,515  
| |       |                                               | Home improvement             | 20,924   | 20,135  
| |       |                                               | Mobile home                  | 4,108    | 5,643   
| |       |                                               | Recreational vehicles        | 58,222   | 52,672  
| |       |                                               | Boats                        | 38,096   | 36,530  
| |       |                                               | Other                        | 3,443    | 3,322   
| |       |                                               |                              | 190,691  | 172,814 
| |       | Commercial business loans                     | 44,362                       | 34,660  
| |       |                                               | Total loans                  | 715,172  | 651,346 
| |       |                                              
| |       | Undisbursed loans in process                  | (8,160)                      | (7,240) 
| |       | Unamortized deferred loan fees and costs, net | 3,748                        | 3,293   
| |       | Allowance for loan losses                     | (6,779)                      | (6,286) 
| |       |                                               | Net loans                    | $703,981 | $641,113

| |                           |                       | **2003** | **2002** | **2001**
| | ------------------------- | --------------------- | -------- | -------- | --------
| | Allowance for loan losses |                       |          |         
| |                           | Balances, January 1   | $6,286   | $5,449   | $6,472  
| |                           | Provision for losses  | 1,450    | 1,713    | 1,282   
| |                           | Recoveries on loans   | 404      | 939      | 61      
| |                           | Loans charged off     | (1,361)  | (1,815)  | (2,366) 
| |                           |                       |          |          |         
| |                           | Balances, December 31 | $6,779   | $6,286   | $5,449  

***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

| | At December 31, 2003 and 2002, accruing loans delinquent 90 days or more totaled $10,000 and $64,000. Non-accruing loans at December 31, 2003 and 2002 were $3,270,000 and $5,032,000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Information on impaired loans is summarized below.                                                                                                                                    
|

| |                                                                                                               | **2003** | **2002**
| | ------------------------------------------------------------------------------------------------------------- | -------- | --------
| |                                                                                                               |          |         
| | Impaired loans with an allowance                                                                              | $2,089   | $2,141  
| |                                                                                                               |          |         
| | Impaired loans for which the discounted cash flows or collateral value exceeds the carrying value of the loan | -
-
-    | 210     
| |                                                                                                               |          |         
| | Total impaired loans                                                                                          | $2,089   | $2,351  
| |                                                                                                               |          |         
| | Allowance for impaired loans included in the Company's
 allowance for loan losses                             | $   151  | $   321 

| |                                                            | **2003** | **2002** | **2001**
| | ---------------------------------------------------------- | -------- | -------- | --------
| |                                                            |          |          |         
| | Average balance of impaired loans                          | $2,942   | $3,821   | $3,642  
| | Interest income recognized on impaired loans               | 62       | 24       | 114     
| | Interest income recognized on impaired loans -
 cash basis | 22       | 8        | 23      

**Note 5:     Premises and Equipment**

| |                                           |                                 |            | **2003** | **2002**
| | ----------------------------------------- | ------------------------------- | ---------- | -------- | --------
| |                                           |                                 |            |          |         
| | Cost                                      |                                 |           
| |                                           | Land                            | $  3,066   | $3,067  
| |                                           | Buildings and land improvements | 9,396      | 9,010   
| |                                           | Equipment                       | 8,571      | 7,106   
| |                                           |                                 | Total cost | 21,033   | 19,183  
| | Accumulated depreciation and amortization | (10,962)                        | (9,996)   
| |                                           |                                 | Net        | $10,071  | $9,187  

***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 6:     Investment In Limited Partnerships**

| |                                                          | **2003**    | **2002**
| | -------------------------------------------------------- | ----------- | --------
| |                                                          |             |         
| | Pedcor Investments 1987-II (99.00 percent ownership)     | $     -
-
- | $   642 
| | Pedcor Investments 1988-V (98.97 percent ownership)      | 364         | 417     
| | Pedcor Investments 1990-XI (19.79 percent ownership)     | 40          | 51      
| | Pedcor Investments 1990-XIII (99.00 percent ownership)   | 725         | 752     
| | Pedcor Investments 1997-XXVIII (99.00 percent ownership) | 2,800       | 3,017   
| | Pedcor Investments 1997-XXIX (99.00 percent ownership)   | 659         | 737     
| | Pedcor Investments 2001-LI (9.94 percent ownership)      | 500         | ---     
| |                                                          | $5,088      | $5,616  

| | The limited partnerships build, own and operate apartment complexes.  The Company records its equity in the net income or loss of the Pedcor Investments 1987-II, 1988-V, 1990-XIII, 1997-XXVIII, 1997-XXIX and 2001-LI based on the Company's interest in the partnerships.  The Company has recorded its investment in Pedcor Investments 1990-XI, which represents less than a 20 percent ownership, at amortized cost and records income when distributions are received.  The Company recorded losses from these limited partnerships of $323,000, $517,000 and $249,000 for 2003, 2002 and 2001.  In addition, the Company has recorded the benefit of low income housing credits of $753,000, $843,000 and $817,000 for 2003, 2002 and 2001.  Combined financial statements for the limited partnerships recorded under the equity method of accounting are as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                   |                             |                   |                                         | **2003**  | **2002**
| | --------------------------------- | --------------------------- | ----------------- | --------------------------------------- | --------- | --------
| | Combined condensed balance sheets |                             |                  
| |                                   | Assets                      |                   |                                        
| |                                   |                             | Cash              | $     154                               | $     204
| |                                   |                             | Land and property | 36,128                                  | 29,445   
| |                                   |                             | Other assets      | 1,231                                   | 1,281    
| |                                   |                            
| |                                   |                             |                   | Total assets                            | $37,513   | $30,930 
| |                                   |                            
| |                                   | Liabilities                 |                   |                                        
| |                                   |                             | Notes payable     | $34,711                                 | $28,695  
| |                                   |                             | Other liabilities | 1,240                                   | 1,512    
| |                                   |                             |                   | Total liabilities                       | 35,951    | 30,207  
| |                                   |                            
| |                                   | Partners'
 equity (deficit) |                   |                                        
| |                                   |                             | General partners  | (2,487)                                 | (3,705)  
| |                                   |                             | Limited partners  | 4,049                                   | 4,428    
| |                                   |                             |                   | Total partners'
 equity                 | 1,562     | 723     
| |                                   |                             |                   |                                         |           |         
| |                                   |                             |                   | Total liabilities and partners'
 equity | $37,513   | $30,930 

***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

| |                                             | **2003**  | **2002** | **2001**
| | ------------------------------------------- | --------- | -------- | --------
| | Combined condensed statements of operations |           |          |         
| | Total revenue                               | $  3,695  | $ 4,369  | $ 3,567 
| | Total expenses                              | (4,129)   | (4,882)  | (4,124) 
| | Net loss                                    | $   (434) | $  (513) | $  (557)

**Note 7:     Deposits**

| |                                                          | **2003**  | **2002** 
| | -------------------------------------------------------- | --------- | ---------
| |                                                          |           |          
| | Noninterest-
bearing demand                              | $  32,138 | $  28,909
| | Interest-
bearing demand                                 | 59,809    | 62,503   
| | Passbook                                                 | 57,785    | 54,677   
| | Money market savings                                     | 48,750    | 45,330   
| | Certificates and other time deposits of $100,000 or more | 109,008   | 78,063   
| | Other certificates                                       | 271,872   | 280,882  
| | Total deposits                                           | $579,362  | $550,364 

| | Certificates including other time deposits of $100,000 or more maturing in years ending December 31:
| | ----------------------------------------------------------------------------------------------------

| | 2004       | $224,603
| | ---------- | --------
| | 2005       | 95,704  
| | 2006       | 22,420  
| | 2007       | 26,448  
| | 2008       | 11,684  
| | Thereafter | 21      
| |            | $380,880

***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 8:     Federal Home Loan Bank Advances**

|**Maturities Years Ending December 31** | **Amount**
|--------------------------------------- | ----------
|                                       
|                                        |           
|                                        | 2004      
|                                        | 2005      
|                                        | 2006      
|                                        | 2007      
|                                        | 2008      
|                                        | Thereafter
|                                        |           

| | At December 31, 2003, the Company has pledged $397,000,000 in qualifying first mortgage loans and investment securities as collateral for advances and outstanding letters of credit.  Advances, at interest rates from 1.11 to 7.33 percent at December 31, 2003, are subject to restrictions or penalties in the event of prepayment.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

**Note 9:     Notes Payable**

| | The Bank has a noninterest-bearing, unsecured term note payable to Pedcor Investments 1997-XXVIII, L.P. of $1,523,000 and $1,584,000 at December 31, 2003 and 2002 payable in semiannual installments through January 1, 2010.  At December 31, 2003 and 2002, the Bank was obligated under an irrevocable direct pay letter of credit for the benefit of a third party in the amount of $1,254,000 relating to this note and the financing for an apartment project by Pedcor Investments 1997-XXVIII L.P.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | The Bank also has a noninterest-bearing, unsecured term note payable to Pedcor Investments 1997-XXIX, LP.  The note, which is payable in annual installments through August 15, 2008, had a balance of $988,000 and $1,300,000 at December 31, 2003 and 2002.                                                                                                                                                                                                                                              
|

|**Maturities Years Ending December 31** | ****      
|--------------------------------------- | ----------
|                                       
|                                        |           
|                                        | 2004      
|                                        | 2005      
|                                        | 2006      
|                                        | 2007      
|                                        | 2008      
|                                        | Thereafter
|                                        |           

*********MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

|**Note 10.     Loan Servicing**
|-------------------------------
|                               
|                               

| |                        | **2003**  | **2002**  | **2001** 
| | ---------------------- | --------- | --------- | ---------
| | Loans serviced for     |           |           |          
| | Freddie Mac            | $  90,616 | $  89,432 | $  82,629
| | Fannie Mae             | 7,712     | 12,343    | 4,924    
| | Federal Home Loan Bank | 17,307    | 12,081    | -
-
-    
| | Other investors        | 12,327    | 14,680    | 12,993   
| |                        | $127,962  | $128,536  | $100,546 

| | The aggregate fair value of capitalized mortgage servicing rights at December 31, 2003, 2002 and 2001 is based on comparable market values and expected cash flows, with impairment assessed based on portfolio characteristics including product type, investor type, and interest rates.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| |                                  | **2003** | **2002** | **2001**
| | -------------------------------- | -------- | -------- | --------
| | Mortgage Servicing Rights        |          |          |         
| | Balances, January 1              | $1,193   | $   879  | $   428 
| | Servicing rights capitalized     | 515      | 524      | 572     
| | Amortization of servicing rights | (375)    | (210)    | (121)   
| |                                  | 1,333    | 1,193    | 879     
| | Valuation allowance              | (320)    | -
-
-    | -
-
-   
| |                                  |          |          |         
| | Balances, December 31            | $1,013   | $1,193   | $   879 

| | During 2003, the Company established a valuation allowance of $320,000.  No valuation allowance was necessary at December 31, 2002 and 2001.
| | --------------------------------------------------------------------------------------------------------------------------------------------
|

***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 11:     Income Tax**

| |                                                           |                                     |         |                          | **2003** | **2002** | **2001**
| | --------------------------------------------------------- | ----------------------------------- | ------- | ------------------------ | -------- | -------- | --------
| | Income tax expense                                        |                                     |         |                         
| |                                                           | Currently payable                   |         |                          |         
| |                                                           |                                     | Federal | $2,090                   | $2,124   | $1,804  
| |                                                           |                                     | State   | 833                      | 889      | 628     
| |                                                           | Deferred                            |         |                          |         
| |                                                           |                                     | Federal | 439                      | 411      | 552     
| |                                                           |                                     | State   | (22)                     | (48)     | 95      
| |                                                           |                                     |         | Total income tax expense | $3,340   | $3,376   | $3,079  
| |                                                           |                                     |        
| | Reconciliation of federal statutory to actual tax expense |                                     |         |                         
| |                                                           | Federal statutory income tax at 34% | $3,877  | $4,031                   | $3,794  
| |                                                           | Effect of state income taxes        | 535     | 555                      | 477     
| |                                                           | Low income housing credits          | (753)   | (843)                    | (817)   
| |                                                           | Tax-exempt income                   | (492)   | (439)                    | (430)   
| |                                                           | Other                               | 173     | 72                       | 55      
| |                                                           |                                     |         |                          |          |          |         
| |                                                           |                                     |         | Actual tax expense       | $3,340   | $3,376   | $3,079  
| |                                                           |                                     |        
| | Effective tax rate                                        | 29.3%                               | 28.5%   | 27.6%                   

***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

| | The components of the deferred asset included on the balance sheets are as follows:
| | -----------------------------------------------------------------------------------

| |                 |                                                  |                   | **2003** | **2002**
| | --------------- | ------------------------------------------------ | ----------------- | -------- | --------
| | **Assets**      |                                                  |                  
| |                 | Allowance for loan losses                        | $2,707            | $2,558  
| |                 | Deferred compensation                            | 2,264             | 2,150   
| |                 | Charitable contribution carryover                | 188               | 510     
| |                 | Depreciation and amortization                    | 136               | 320     
| |                 | Business tax and AMT credit carryovers           | 515               | 524     
| |                 | Other                                            | 143               | 518     
| |                 |                                                  | Total assets      | 5,953    | 6,580   
| |                 |                                                  |                   |          |         
| | **Liabilities** |                                                  |                  
| |                 | FHLB stock                                       | (322)             | (210)   
| |                 | State income tax                                 | (232)             | (222)   
| |                 | Loan fees                                        | (697)             | (1,194) 
| |                 | Investments in limited partnerships              | (279)             | (28)    
| |                 | Unrealized gain on securities available for sale | (155)             | (310)   
| |                 | Mortgage servicing rights                        | (422)             | (498)   
| |                 |                                                  | Total liabilities | (2,107)  | (2,462) 
| |                 |                                                  |                   | $ 3,846  | $4,118  

| | The Company has a charitable contribution carryover of $552,000 that expires in 2005 and unused business income tax credits of $342,000 expiring in 2017.  In addition, the Company has an AMT credit carryover of $173,000 with an unlimited carryover period.                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | Retained earnings include approximately $14,743,000 for which no deferred income tax liability has been recognized.  This amount represents an allocation of income to bad debt deductions as of December 31, 1987 for tax purposes only.  Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which income would be subject to the then-current corporate income tax rate.  The unrecorded deferred income tax liability on the above amounts was approximately $5,013,000.
|

***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 12:     Other Comprehensive Income**

| |                                 |                                                                      
| | ------------------------------- | ---------------------------------------------------------------------
| |                                 |                                                                      
| |                                 |                                                                      
| | Unrealized losses on securities |                                                                      
| |                                 | Unrealized holding losses arising during the year                    
| |                                 | Less: reclassification adjustment for losses
  realized in net income
| |                                 |                                                                      
| |                                 | Net unrealized losses                                                
| |                                 |                                                                      
| |                                 |                                                                      
| |                                 |                                                                      
| |                                 |                                                                      
| | Unrealized gains on securities  |                                                                      
| |                                 | Unrealized holding gains arising during the year                     
| |                                 | Less: reclassification adjustment for losses
  realized in net income
| |                                 |                                                                      
| |                                 | Net unrealized gains                                                 
| |                                 |                                                                      
| |                                 |                                                                      
| |                                 |                                                                      
| | Unrealized gains on securities  |                                                                      
| |                                 | Unrealized holding gains arising during the year                     
| |                                 | Less: reclassification adjustment for gains
  realized in net income 
| |                                 |                                                                      
| |                                 | Net unrealized gains                                                 

| | In the normal course of business there are outstanding commitments and contingent liabilities, such as
commitments to extend credit and standby letters of credit, which are not included in the accompanying
financial statements.  The Company'
s exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and standby letters of credit is
represented by the contractual or notional amount of those instruments.  The Bank uses the same credit
policies in making such commitments as it does for instruments that are included in the consolidated
statements of financial condition.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

***MutualFirst***Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

| | Financial instruments whose contract amount represents credit risk as of December 31 were as follows:
| | -----------------------------------------------------------------------------------------------------

| |                           | **2003** | **2002**
| | ------------------------- | -------- | --------
| |                           |          |         
| | Loan commitments          | $72,419  | $67,388 
| | Standby letters of credit | 7,165    | 7,039   

|                                                   | Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract.  Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee.  Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily represent future cash
requirements.  The Company evaluates each customer'
s credit worthiness on a case-
by-
case basis.  The
amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on
management'
s credit evaluation.  Collateral held varies, but may include residential real estate, income-
producing commercial properties, or other assets of the borrower.
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                  
|                                                   | Standby letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                  
|                                                   | The Company and Bank are also subject to claims and lawsuits which arise primarily in the ordinary
course of business.  It is the opinion of management that the disposition or ultimate resolution of such
claims and lawsuits will not have a material adverse effect on the consolidated financial position of the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                  
|**Note 14:     Dividend and Capital Restrictions**
|                                                  
|                                                   | The Company is not subject to any regulatory restrictions on the payment of dividends to its stockholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                  
|                                                   | Without prior approval, current regulations allow the Bank to pay dividends to the Company not
exceeding retained net income for the current year plus the previous two calendar years.  At December 31,
2003, the stockholder'
s equity of the Bank was $94,121,000, of which $91,012,000 was restricted, without
prior regulatory approval, for dividend distribution to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                  

***MutualFirst***Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

|**Note 15:     Regulatory Capital**
|-----------------------------------
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   

|                                                        | **Actual** | **Required for
AdequateCapital 1** | **To Be Well
Capitalized 1**
|------------------------------------------------------- | ---------- | ---------------------------------- | ----------------------------
|                                                        | **Amount** | **Ratio**                          | **Amount**                  
|                                                        |            |                                    |                             
|Total risk-
based capital 1 (to risk-
weighted
assets)  | $99,636    | 17.0%                              | $46,975                     
|Tier 1 risk-
based capital 1 (to risk-
weighted
assets) | 92,979     | 15.8%                              | 23,487                      
|Core capital 1 (to adjusted total assets)               | 92,979     | 11.3%                              | 24,638                      
|Core capital 1 (to adjusted tangible assets)            | 92,979     | 11.3%                              | 16,425                      
|Tangible capital 1 (to adjusted total assets)           | 92,979     | 11.3%                              | 12,319                      
|**As of December 31, 2002**                             |            |                                    |                             
|Total risk-
based capital 1 (to risk-
weighted
assets)  | $96,269    | 17.7%                              | $43,585                     
|Tier 1 risk-
based capital 1 (to risk-
weighted
assets) | 90,055     | 16.5%                              | 21,793                      
|Core capital 1 (to adjusted total assets)               | 90,055     | 11.7%                              | 23,142                      
|Core capital 1 (to adjusted tangible assets)            | 90,055     | 11.7%                              | 15,428                      
|Tangible capital 1 (to adjusted total assets)           | 90,055     | 11.7%                              | 11,571                      
|1 As defined by regulatory agencies                     |            |                                    |                             

***MutualFirst* Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

|**Note 16:     Employee Benefits**
|----------------------------------
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  

| |                                   | **2003** | **2002** | **2001**
| | --------------------------------- | -------- | -------- | --------
| |                                   |          |          |         
| | Allocated shares                  | 115,942  | 80,857   | 52,389  
| | Suspense shares                   | 317,843  | 349,626  | 381,395 
| | Committed-
to-
be released shares | 31,783   | 31,783   | 31,783  

| | The Company has a Recognition and Retention Plan (RRP) for the award of up to 232,784 shares of the
common stock of the Company to directors and executive officers.  Common stock awarded under the
RRP vests ratably over a three or five-
year period commencing with the date of the grants.  Expense
recognized on the vested shares totaled approximately $450,000, $768,000 and $1,394,000 in 2003,
2002 and 2001.  The unearned portion of these stock awards is presented as a reduction of stockholders'

equity.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

***MutualFirst* Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 17:     Stock Option Plan**

| | Under the Company'
s stock option plan, which is accounted for in accordance with Accounting Principles
Board Opinion (APB) No. 25, *Accounting for Stock Issued to Employees*, and related interpretations, the
Company grants selected executives and other key employees and directors incentive and non-
qualified
stock option awards which vest and become fully exercisable at the discretion of the stock option
committee as the options are granted.  The Company is authorized to grant options for up to 581,961 shares
of the Company'
s common stock.  Under certain provisions of the plan, the number of shares available for
grant may be increased without shareholder approval by the amount of shares surrendered as payment of
the exercise price of the stock option and by the number of shares of common stock of the Company that
could be repurchased by the Company using proceeds from the exercise of stock options.  The exercise
price of the options, which have a 10 to 15 year life, may not be less than the market price of the
Company'
s stock on the date of grant; therefore, no compensation expense will be recognized when the
options are granted.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | The following is a summary of the status of the Company'
s stock option plan and changes in that plan for
2003, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                                                  | **2003**   | **2002**                              | **2001**  
|----------------------------------------------------------------- | ---------- | ------------------------------------- | ----------
|**Options**                                                       | **Shares** | **Weighted-

Average
Exercise
Price** | **Shares**
|                                                                 
|                                                                  |            |                                       |           
|Outstanding, beginning of year                                    | 530,086    | $14.32                                | 535,714   
|Granted                                                           | 75,000     | 25.66                                 | -
-
-     
|Exercised                                                         | (71,897)   | 13.55                                 | (3,331)   
|Forfeited/expired                                                 | (4,800)    | 14.50                                 | (2,297)   
|Outstanding, end of year                                          | 528,389    | 16.03                                 | 530,086   
|Options exercisable at year end                                   | 337,389    |                                       | 286,619   
|Weighted-
average fair value of options
  granted during the year |            | 2.76                                  |           

***MutualFirst* Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

At December 31, 2003, certain information by exercise price for options outstanding and exercisable is as follows:

|**Exercise
Price** | **Number 
of Shares** | **Weighted-

Average
Remaining
Contractual
Life** | **Number of
Shares
Exercisable**
|------------------ | --------------------- | ------------------------------------------------- | --------------------------------
|                   |                       |                                                   |                                 
|$12.35             | 13,912                | 3.6 years                                         | 13,912                          
|14.50              | 439,477               | 9.5 years                                         | 323,477                         
|25.66              | 75,000                | 12.4 years                                        | -
-
-                           



| | Although the Company has elected to follow APB No. 25, SFAS No. 123 requires pro forma
disclosures of net income and earnings per share as if the Company had accounted for its employee
stock options under that statement (see Note 1).  The fair value of each option grant was estimated on
the grant date using an option-
pricing model with the following assumptions:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| |                                                             | 2003    | 2001   
| | ----------------------------------------------------------- | ------- | -------
| |                                                             |         |        
| | Risk-
free interest rates                                   | 2.29%   | 5.14%  
| | Dividend yields                                             | 1.76%   | 2.19%  
| | Volatility factors of expected market price of common stock | 9.30%   | 8.40%  
| | Weighted-
average expected life of the options              | 8 years | 8 years

***MutualFirst* Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 18:     Earnings Per Share**

| | Earnings per share were computed as follows:
| | --------------------------------------------

| |                                                                        | **2003**  
| | ---------------------------------------------------------------------- | ----------
| |                                                                        | **Income**
| |                                                                        |           
| | **Basic Earnings Per Share**                                           |           
| | Income available to common shareholders                                | $8,062    
| | **Effect of Dilutive Securities**                                      |           
| | Stock options                                                          | -
-
-     
| | **Diluted Earnings Per Share**                                         |           
| | Income available to common stockholders
       and assumed conversions | $8,062    
| |                                                                        |           
| |                                                                        | **2002**  
| |                                                                        | **Income**
| |                                                                        |           
| | **Basic Earnings Per Share**                                           |           
| | Income available to common shareholders                                | $8,480    
| | **Effect of Dilutive Securities**                                      |           
| | Stock options                                                          | -
-
-     
| | **Diluted Earnings Per Share**                                         |           
| | Income available to common stockholders       and assumed conversions  | $8,480    
| |                                                                        |           
| |                                                                        | **2001**  
| |                                                                        | **Income**
| |                                                                        |           
| | **Basic Earnings Per Share**                                           |           
| | Income available to common shareholders                                | $8,080    
| | **Effect of Dilutive Securities**                                      |           
| | Stock options                                                          | -
-
-     
| | **Diluted Earnings Per Share**                                         |           
| | Income available to common stockholders
       and assumed conversions | $8,080    

***MutualFirst* Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

|**Note 19:     Fair Values of Financial Instruments**
|-----------------------------------------------------
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     

***MutualFirst* Financial, Inc.
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

| | The estimated fair values of the Company'
s financial instruments are as follows:
| | ---------------------------------------------------------------------------------

| |                 |                                                 | **2003**            | **2002**      
| | --------------- | ----------------------------------------------- | ------------------- | --------------
| |                 |                                                 | **Carrying
Amount** | **Fair
Value**
| | **Assets**      |                                                 |                     |               
| |                 | Cash and cash equivalents                       | $23,068             | $23,068       
| |                 | Securities available for sale                   | 33,472              | 33,472        
| |                 | Loans held for sale                             | 1,975               | 2,001         
| |                 | Loans                                           | 703,981             | 712,277       
| |                 | Stock in FHLB                                   | 7,264               | 7,264         
| |                 | Cash value of life insurance                    | 26,140              | 26,140        
| |                 | Interest receivable                             | 3,194               | 3,194         
| |                 |                                                 |                     |               
| | **Liabilities** |                                                 |                     |               
| |                 | Deposits                                        | 579,362             | 580,378       
| |                 | FHLB Advances                                   | 134,592             | 142,127       
| |                 | Notes payable                                   | 2,511               | 2,188         
| |                 | Interest payable                                | 851                 | 851           
| |                 | Advances by borrowers for taxes and
  insurance | 1,448               | 1,448         

***MutualFirst* Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 20:     Condensed Financial Information (Parent Company Only)**

| | Presented below is condensed financial information as to financial position, results of operations and
cash flows of the Company:
| | ---------------------------------------------------------------------------------------------------------------------------------
|

| |                           | **Condensed Balance Sheets**               
| | ------------------------- | -------------------------------------------
| |                           |                                            
| | **Assets**                |                                            
| |                           | Cash on deposit with Bank                  
| |                           | Cash on deposit with others                
| |                           | Total cash and cash equivalents            
| |                           | Loans receivable                           
| |                           | Investment in common stock of Bank         
| |                           | Deferred income tax                        
| |                           | Other assets                               
| |                           | Total assets                               
| |                           |                                            
| | **Liabilities** -
 other  | $  (611)                                   
| |                           |                                            
| | **Stockholders'
 Equity** | 97,520                                     
| |                           |                                            
| |                           | Total liabilities and stockholders'
 equity

***MutualFirst***Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001(Table Dollar Amounts in Thousands, Except Share and Per Share Data)



| | **2003**                                                                            | **2002**                         | **2001**    
| | ----------------------------------------------------------------------------------- | -------------------------------- | ------------
| |                                                                                     |                                  |             
| | **Income**                                                                          |                                  |             
| |                                                                                     | Interest income from Bank        | $     20    
| |                                                                                     | Interest income from investments | -
-
-       
| |                                                                                     | Interest income from loans       | 116         
| |                                                                                     | Dividends from Bank              | 5,000       
| |                                                                                     | Other income                     | 130         
| |                                                                                     |                                  | Total income
| |                                                                                     |                                  |             
| | **Expenses**                                                                        | 331                              | 230         
| |                                                                                     |                                  |             
| | **Income before income tax and equity in
      undistributed income of subsidiary** | 4,935                            | 21,768      
| |                                                                                     |                                  |             
| | **Income tax expense (benefit)**                                                    | (18)                             | 105         
| |                                                                                     |                                  |             
| | **Income before equity in undistributed income
      of subsidiary**                | 4,953                            | 21,663      
| |                                                                                     |                                  |             
| | **Equity in undistributed income of subsidiary**                                    | 3,109                            | (13,183)    
| |                                                                                     |                                  |             
| | **Net Income**                                                                      | $8,062                           | $  8,480    

***MutualFirst* Financial, Inc.Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)



| |                                                  |                                                             |                                                                      |                                           | **2003**  | **2002** | **2001**
| | ------------------------------------------------ | ----------------------------------------------------------- | -------------------------------------------------------------------- | ----------------------------------------- | --------- | -------- | --------
| | **Operating Activities**                         |                                                             |                                                                      |                                          
| |                                                  | Net income                                                  | $    8,062                                                           | $   8,480                                 | $   8,080
| |                                                  | Item not requiring (providing) cash                         |                                                                      |                                           |          
| |                                                  |                                                             | ESOP shares earned                                                   | 752                                       | 585       | 464     
| |                                                  |                                                             | Deferred income tax benefit                                          | 426                                       | 236       | 289     
| |                                                  |                                                             | Distributions in excess of earnings   (undistributed income) of Bank | (3,109)                                   | 13,183    | 2,387   
| |                                                  |                                                             | Other                                                                | 123                                       | (266)     | 276     
| |                                                  |                                                             |                                                                      | Net cash provided by operating activities | 6,254     | 22,218   | 11,496  
| |                                                  |                                                             |                                                                     
| | **Investing Activities**                         |                                                             |                                                                      |                                          
| |                                                  | Net change in loans                                         | 1,250                                                                | 1,250                                     | 389      
| |                                                  | Purchase of securities available for sale                   |                                                                      | -
-
-                                     | -
-
-    
| |                                                  | Proceeds from maturities of securities available
  for sale | -
-
-                                                                | 1,001                                     | 1,000    
| |                                                  |                                                             |                                                                      | Net cash provided by investing activities | 1,250     | 2,251    | 1,892   
| |                                                  |                                                             |                                                                      |                                           |           |          |         
| | **Financing Activities**                         |                                                             |                                                                      |                                          
| |                                                  | Stock repurchased                                           | (7,182)                                                              | (21,184)                                  | (28,224) 
| |                                                  | Cash dividends                                              | (2,021)                                                              | (1,896)                                   | (2,265)  
| |                                                  | Proceeds from stock options exercised                       | 974                                                                  | 40                                        | 54       
| |                                                  |                                                             |                                                                      | Net cash used in financing activities     | (8,229)   | (23,040) | (30,435)
| |                                                  |                                                             |                                                                      |                                          
| | **Net Change in Cash and Cash Equivalents**      | (725)                                                       | 1,429                                                                | (17,047)                                 
| |                                                  |                                                             |                                                                      |                                          
| | **Cash and Cash Equivalents, Beginning of Year** | 2,372                                                       | 943                                                                  | 17,990                                   
| |                                                  |                                                             |                                                                      |                                          
| | **Cash and Cash Equivalents, End of Year**       | $    1,647                                                  | $    2,372                                                           | $       943