|MutualFirst
Financial Inc. 
 
 
 
 
 
 
 
2002ANNUALREPORT
|----------------------------------------------------------

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|                                             
|---------------------------------------------
|                                             
|                                             
|*MutualFirst*

Financial, Inc.www.mfsbank.com

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|                                                  | **Page No.**                       
|------------------------------------------------- | -----------------------------------
|                                                  |                                    
|President's Message                               | 1                                  
|                                                  |                                    
|Selected Consolidated Financial Information       | 2                                  
|                                                  |                                    
|Management's Discussion and Analysis of Financial |                                    
|                                                  | Condition and Results of Operations
|                                                  |                                    
|Independent Accountant's Report                   | 17                                 
|                                                  |                                    
|Consolidated Financial Statements                 | 18                                 
|                                                  |                                    
|Notes to Consolidated Financial Statements        | 23                                 
|                                                  |                                    
|Corporate Information                             | 47                                 
|                                                  |                                    
|Shareholder Information                           | 49                                 

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|I am pleased to bring you the report of *MutualFirst*Financial,
Inc. on its third full year of operation. Year 2002 brought an
historically low interest rate environment. This created further
opportunities for mortgage borrowers to refinance and purchasers to
obtain homes at attractively low rates. Consumer loan borrowing
continued at a heavy pace.  We continued to make strides in the
commercial loan area.  While the stock market in general did not
perform well, our stock, as did most banks, overcame the tide and did
very well. *MutualFirst*continued with its Strategic Plan, which
included succession plan implementation and is confident in meeting
the future with aggressiveness, continuity, and stability. |                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|We are extremely pleased with our financial performance for year 2002. Our earnings for the year increased from $8.1
million to $8.5 million, or from $1.16 to $1.51 for diluted earnings per share.  We were able to repurchase 1.2 million shares of our
common stock for $21.2 million, which contributed to this 30% improvement in earnings per share.  We are currently in our fifth
buy back program. Our dividend payout increased by 15.6%.  We increased our net interest margin from 3.67% to 3.84%.  Our
return on assets improved from 1.05% to 1.09% and our return on equity increased from 6.80% to 8.36%.                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|David W. Heeter was elected to the position of Executive Vice President of *MutualFirst*Financial, Inc. and Patrick C.
Botts was elevated to the level of Executive Vice President and Chief Operating Officer of Mutual Federal Savings Bank early in
the year.  Both of these moves are designed to ensure an orderly transition of responsibilities in 2003.                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Our equity position in Indiana Title Insurance, LLC proved to be an excellent investment.  We have received approval to
build our 18th branch near the intersection of US 30 and Indiana State Highway 15 in Warsaw.  These are just two of the many
ways we plan to build and grow the company to extend our 113-year history of success in the financial services industry.  We will
leverage our quality customer service, technological competence, lending expertise and breadth of deposit and investment products
and services to assure this is a safe, sound and rewarding investment for our shareholders.                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | President and Chief Executive Officer

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|                                      | **At or For the Year Ended December 31,**
|------------------------------------- | -----------------------------------------
|                                      | **2002**                                 
|                                      | (In Thousands)                           
|**Selected Financial Condition Data** |                                          
|                                      |                                          
|Total Assets                          | $775,798                                 
|                                      |                                          
|Cash and cash equivalents             | 23,620                                   
|                                      |                                          
|Loans, net                            | 641,113                                  
|                                      |                                          
|Investment Securities:                |                                          
|                                      | Available-for -sale, at fair value       
|                                      | Held-to-maturity                         
|                                      |                                          
|Total deposits                        | 550,364                                  
|                                      |                                          
|Total borrowings                      | 118,287                                  
|                                      |                                          
|Total stockholders' equity            | 96,717                                   
|                                      |                                          
|                                      |                                          
|                                      |                                          
|                                      |                                          
|Selected Operations Data              |                                          
|                                      |                                          
|Total interest income                 | $50,440                                  
|Total interest expense                | 23,119                                   
|                                      |                                          
|                                      | Net interest income                      
|Provision for loan losses             | 1,713                                    
|Net interest income after provision   |                                          
|                                      | for loan losses                          
|Service fee income                    | 2,785                                    
|Gain on sale of loans and             |                                          
|                                      | investment securities                    
|Other non-interest income             | 1,798                                    
|Total non-interest income             | 5,948                                    
|                                      |                                          
|Salaries and employee benefits        | 12,454                                   
|Charitable contributions              | 0                                        
|Other expenses                        | 7,246                                    
|Total non-interest expense            | 19,700                                   
|                                      |                                          
|Income before taxes                   | 11,856                                   
|Income tax expense                    | 3,376                                    
|Net income                            | $  8,480                                 

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|                                                        |                                                    |                                 | **At or For the Year Ended December 31,**
|------------------------------------------------------- | -------------------------------------------------- | ------------------------------- | -----------------------------------------
|                                                        |                                                    |                                 | **2002**                                 
|**Selected Financial Ratios and Other Financial Data:** |                                                    |                                 |                                          
|                                                        |                                                    |                                 |                                          
|Performance Ratios:                                     |                                                    |                                 |                                          
|                                                        | Return on average assets (ratio of net             |                                 |                                          
|                                                        |                                                    | income to average total assets) | 1.09%                                    
|                                                        | Return on average equity (ratio of net             |                                 |                                          
|                                                        |                                                    | income to average equity)       | 8.36                                     
|                                                        |                                                    |                                 |                                          
|                                                        | Interest rate spread information:                  |                                 |                                          
|                                                        |                                                    | Average during the period       | 3.59                                     
|                                                        |                                                    | Net interest margin(1)          | 3.84                                     
|                                                        |                                                    |                                 |                                          
|Ratio of operating expense to average total assets      | 2.53                                               | 2.54                            | 2.30                                     
|                                                        |                                                    |                                 |                                          
|Ratio of average interest-earning assets to             |                                                    |                                 |                                          
|                                                        | assets to average interest-bearing liabilities     | 107.71                          | 110.85                                   
|                                                        |                                                    |                                 |                                          
|Efficiency ratio(2)                                     | 59.21                                              | 61.08                           | 56.69                                    
|                                                        |                                                    |                                 |                                          
|Asset Quality Ratios: (4)                               |                                                    |                                 |                                          
|                                                        | Non-performing assets to total assets              | 0.89                            | 1.05                                     
|                                                        |                                                    |                                 |                                          
|                                                        | Non-performing loans to total loans                | 0.79                            | 1.03                                     
|                                                        |                                                    |                                 |                                          
|                                                        | Allowance for loan losses to non-performing loans  | 123.35                          | 82.4                                     
|                                                        |                                                    |                                 |                                          
|                                                        | Allowance for loan losses to loans receivable, net | 0.97                            | 0.86                                     
|                                                        |                                                    |                                 |                                          
|Capital Ratios:                                         |                                                    |                                 |                                          
|                                                        | Equity to total assets (4)                         | 12.47                           | 14.25                                    
|                                                        |                                                    |                                 |                                          
|                                                        | Average equity to average assets                   | 13.04                           | 15.44                                    
|                                                        |                                                    |                                 |                                          
|Share and Per Share Data:                               |                                                    |                                 |                                          
|                                                        | Average common shares outstanding                  |                                 |                                          
|                                                        |                                                    | Basic                           | 5,483,929                                
|                                                        |                                                    | Diluted                         | 5,597,307                                
|                                                        | Per share:                                         |                                 |                                          
|                                                        |                                                    | Basic earnings                  | $1.55                                    
|                                                        |                                                    | Diluted earnings                | $1.51                                    
|                                                        |                                                    | Dividends                       | 0.37                                     
|                                                        |                                                    |                                 |                                          
|Dividend payout ratio (3)                               | 24.50%                                             | 27.59%                          | 25.00%                                   
|                                                        |                                                    |                                 |                                          
|Other Data:                                             |                                                    |                                 |                                          
|                                                        | Number of full-service offices                     | 17                              | 17                                       

|(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 earnings per share                                       
|(4) | At end of period                                                                        

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> ***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 2002, that percentage had
> increased to 43.2%
> 
> ***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 2002, we originated $188.1 million of one- to four- family
> residential loans.
> 
> ***Continuing To Focus On Asset Quality.***  Non-performing assets to total assets was .89% at December 31, 2002, an
> improvement from 1.05% at December 31, 2001.  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, 2002, our ratio of stockholders' equity to total assets was
> 12.5%.

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> 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 fixed-rate loans in our portfolio.

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|ChangesIn Rates        |          |          |           | NPV as % of PV of Assets
|---------------------- | -------- | -------- | --------- | ------------------------
|$ Amount               | $ Change | % Change | NPV Ratio | Change                  
|(Dollars in thousands)
|+300 bp                | 66,376   | -23,916  | -26%      | 8.89%                   
|+200 bp                | 76,394   | -13,898  | -16%      | 9.98%                   
|+100 bp                | 85,038   | -5,254   | -6%       | 10.92%                  
|0 bp                   | 90,292   |          |           | 11.41%                  
|-100 bp                | 90,330   | 38       | 0%        | 11.30%                  
|-200 bp                | 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)                  

|ChangesIn Rates        |          |          |           | NPV as % of PV of Assets
|---------------------- | -------- | -------- | --------- | ------------------------
|$ Amount               | $ Change | % Change | NPV Ratio | Change                  
|(Dollars in thousands)
|+300 bp                | 72,270   | -31,165  | -30%      | 9.92%                   
|+200 bp                | 83,082   | -20,353  | -20%      | 11.16%                  
|+100 bp                | 93,661   | -9,774   | -9%       | 12.32%                  
|0 bp                   | 103,435  |          |           | 13.33%                  
|-100 bp                | 109,059  | 5,624    | 5%        | 13.85%                  
|-200 bp                | 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)                  
|                       |          |          |           |                         

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|                                                 |                                          |                                            | Year ended December 31,  
|------------------------------------------------ | ---------------------------------------- | ------------------------------------------ | -------------------------
|                                                 |                                          |                                            | 2002                     
|                                                 |                                          |                                            | AverageOutstandingBalance
|                                                 |                                          |                                            | (Dollars in thousands)   
|Interest-Earning Assets:                         |                                          |                                            |                          
|                                                 | Interest -bearing deposits               | $  11,215                                  | $     175                
|                                                 | Trading account securities               | ---                                        | ---                      
|                                                 | Mortgage-backed securities               | 11,451                                     | 677                      
|                                                 | Investment securities:                   |                                            |                          
|                                                 |                                          | Available-for-sale (1)                     | 19,525                   
|                                                 |                                          | Held-to-maturity                           | 0                        
|                                                 | Loans (2)(5)                             | 662,212                                    | 48,247                   
|                                                 | Stock in FHLB of Indianapolis            | 6,993                                      | 424                      
|                                                 | Total interest-earning assets            | 711,396                                    | 50,439                   
|Non-interest earning assets, net of allowance    |                                          |                                            |                          
|                                                 | for loan losses and unrealized gain/loss | 65,818                                     |                          
|                                                 | Total assets                             | $777,214                                   |                          
|                                                 |                                          |                                            |                          
|Interest-Bearing Liabilities:                    |                                          |                                            |                          
|                                                 | Demand and NOW accounts                  | $  81,774                                  | 429                      
|                                                 | Savings deposits                         | 54,515                                     | 592                      
|                                                 | Money market accounts                    | 47,301                                     | 740                      
|                                                 | Certificate accounts                     | 366,522                                    | 15,634                   
|                                                 | Total deposits                           | 550,112                                    | 17,395                   
|                                                 | Borrowings                               | 110,334                                    | 5,724                    
|                                                 |                                          | Total interest-bearing accounts            | 660,446                  
|Other liabilities                                | 15,385                                   |                                            |                          
|                                                 |                                          | Total liabilities                          | 675,831                  
|Stockholders' equity                             | 101,383                                  |                                            |                          
|                                                 |                                          | Total liabilities and stockholders' equity | $777,214                 
|                                                 |                                          |                                            |                          
|Net earning assets                               | $  50,950                                |                                            |                          
|                                                 |                                          |                                            |                          
|Net interest income                              |                                          | $27,320                                    |                          
|                                                 |                                          |                                            |                          
|Net interest rate spread (3)                     |                                          |                                            | 3.59%                    
|                                                 |                                          |                                            |                          
|Net yield on average interest-earning assets (4) |                                          |                                            | 3.84%                    
|                                                 |                                          |                                            |                          
|Average interest-earning assets to               |                                          |                                            |                          
|                                                 | average interest-bearing liabilities     | 107.71%                                    |                          

|(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.                                                                                                                                       

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|                              |                               |                                    | Year Ended December 31,    
|----------------------------- | ----------------------------- | ---------------------------------- | ---------------------------
|                              |                               |                                    | 2002 vs. 2001              
|                              |                               |                                    | Increase
(decrease)

Due to
|                              |                               |                                   
|                              |                               |                                   
|                              |                               |                                    | Volume                     
|                              |                               |                                    | (Dollars in thousands)     
|Interest-earning assets:      |                               |                                    |                            
|                              | Interest-bearing deposits     | $106                               | ($120)                     
|                              | Trading account securities    | 0                                  | 0                          
|                              | Investment securities:        |                                    |                            
|                              |                               | Available-for-sale                 | 91                         
|                              |                               | Held-to-maturity                   | (270)                      
|                              | Loans receivable              | 443                                | (4,215)                    
|                              | Stock in FHLB of Indianapolis | 0                                  | (96)                       
|                              |                               |                                    |                            
|                              |                               | Total interest-earning assets      | $370                       
|                              |                               |                                    |                            
|Interest-bearing liabilities: |                               |                                    |                            
|                              | Savings deposits              | $86                                | ($415)                     
|                              | Money market accounts         | 115                                | (645)                      
|                              | Demand and NOW accounts       | 65                                 | (365)                      
|                              | Certificate accounts          | 8                                  | (4,769)                    
|                              | Borrowings                    | 447                                | (490)                      
|                              |                               |                                    |                            
|                              |                               | Total interest-bearing liabilities | $721                       
|                              |                               |                                    |                            
|Change in net interest income |                               |                                    | $1,462                     

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|**QuarterEnded** | **InterestIncome** | **InterestExpense** | **NetInterestIncome** | **ProvisionforLoanLosses** | **NetIncome** | **BasicEarningsperCommonShare** | **DilutedEarningsperCommonShare**
|---------------- | ------------------ | ------------------- | --------------------- | -------------------------- | ------------- | ------------------------------- | ---------------------------------
|                 |                    |                     |                       |                            |               |                                 |                                  
|2002             |                    |                     |                       |                            |               |                                 |                                  
|March            | $12,755            | $  6,125            | $  6,630              | $   587                    | $1,884        | $0.32                           | $0.32                            
|June             | 12,716             | 5,888               | 6,828                 | 375                        | 2,013         | 0.35                            | 0.34                             
|September        | 12,550             | 5,709               | 6,841                 | 375                        | 2,326         | 0.44                            | 0.43                             
|December         | 12,418             | 5,396               | 7,022                 | 375                        | 2,257         | 0.44                            | 0.43                             
|                 | Total              | $50,439             | $23,118               | $27,321                    | $1,712        | $8,480                          | 1.55                             
|                 |                    |                     |                       |                            |               |                                 |                                  
|                 |                    |                     |                       |                            |               |                                 |                                  
|2001             |                    |                     |                       |                            |               |                                 |                                  
|March            | $14,057            | $  7,734            | $  6,323              | $   189                    | $1,739        | $0.23                           | $0.22                            
|June             | 14,112             | 7,514               | 6,598                 | 296                        | 2,164         | 0.30                            | 0.30                             
|September        | 13,667             | 7,173               | 6,494                 | 607                        | 2,116         | 0.31                            | 0.31                             
|December         | 13,104             | 6,660               | 6,444                 | 190                        | 2,061         | 0.33                            | 0.33                             
|                 | Total              | $54,940             | $29,081               | $25,859                    | $1,282        | $8,080                          | 1.16                             

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|****                                     | ****                                                                 | ****                                   | ****                                                    | ****                                       | **2002**      | **2001**     
|---------------------------------------- | -------------------------------------------------------------------- | -------------------------------------- | ------------------------------------------------------- | ------------------------------------------ | ------------- | -------------
|**Assets**                               |                                                                      |                                       
|                                         |                                                                      |                                        |                                                         |                                            |               |              
|                                         | Cash and due from banks                                              | $  17,986,004                          | $  24,140,688                                          
|                                         | Interest-bearing demand deposits                                     | 5,633,953                              | 6,416,985                                              
|                                         |                                                                      | Cash and cash equivalents              | 23,619,957                                              | 30,557,673                                
|                                         | Investment securities available for sale                             | 42,362,138                             | 31,580,095                                             
|                                         | Loans held for sale                                                  | 7,850,711                              | 11,559,158                                             
|                                         | Loans, net of allowance for loan losses of $6,285,959 and $5,449,292 | 641,112,981                            | 636,635,126                                            
|                                         | Premises and equipment                                               | 9,186,501                              | 8,674,152                                              
|                                         | Federal Home Loan Bank stock                                         | 6,993,400                              | 6,993,400                                              
|                                         | Investment in limited partnerships                                   | 5,616,485                              | 5,677,060                                              
|                                         | Deferred income tax benefit                                          | 4,118,344                              | 4,553,975                                              
|                                         | Cash surrender value of life insurance                               | 25,439,308                             | 24,231,091                                             
|                                         | Other assets                                                         | 9,497,834                              | 8,866,143                                              
|                                         |                                                                      |                                        |                                                         |                                            |               |              
|                                         |                                                                      |                                        |                                                         | Total assets                               | $775,797,659  | $769,327,873 
|                                         |                                                                      |                                        |                                                         |                                            |               |              
|**Liabilities and Stockholders' Equity** |                                                                      |                                       
|                                         |                                                                      |                                        |                                                         |                                            |               |              
|                                         | **Liabilities**                                                      |                                        |                                                        
|                                         |                                                                      | Deposits                               |                                                         |                                           
|                                         |                                                                      |                                        | Noninterest-bearing                                     | $  28,908,935                              | $  23,433,570
|                                         |                                                                      |                                        | Interest-bearing                                        | 521,455,008                                | 515,444,601  
|                                         |                                                                      |                                        |                                                         | Total deposits                             | 550,363,943   | 538,878,171  
|                                         |                                                                      | Federal Home Loan Bank advances        | 115,403,203                                             | 107,484,586                               
|                                         |                                                                      | Notes payable                          | 2,883,631                                               | 3,258,677                                 
|                                         |                                                                      | Other liabilities                      | 10,429,756                                              | 9,962,261                                 
|                                         |                                                                      |                                        |                                                         | Total liabilities                          | 679,080,533   | 659,583,695  
|                                         |                                                                      |                                        |                                                         |                                            |               |              
|                                         | **Commitments and Contingencies**                                    |                                        |                                                        
|                                         |                                                                      |                                        |                                                         |                                            |               |              
|                                         | **Stockholders' Equity**                                             |                                        |                                                        
|                                         |                                                                      | Preferred stock, $.01 par value        |                                                         |                                           
|                                         |                                                                      |                                        | Authorized and unissued - 5,000,000 shares              |                                            |              
|                                         |                                                                      | Common stock, $.01 par value           |                                                         |                                           
|                                         |                                                                      |                                        | Authorized - 20,000,000 shares                          |                                            |              
|                                         |                                                                      |                                        | Issued and outstanding - 5,523,052 and 6,693,841 shares | 55,231                                     | 66,938       
|                                         |                                                                      | Additional paid-in capital             | 38,782,755                                              | 59,575,884                                
|                                         |                                                                      | Retained earnings                      | 61,779,695                                              | 55,195,694                                
|                                         |                                                                      | Accumulated other comprehensive income | 464,452                                                 | 356,009                                   
|                                         |                                                                      | Unearned benefit plan shares           | (4,365,007)                                             | (5,450,347)                               
|                                         |                                                                      |                                        |                                                         | Total stockholders' equity                 | 96,717,126    | 109,744,178  
|                                         |                                                                      |                                        |                                                         |                                            |               |              
|                                         |                                                                      |                                        |                                                         | Total liabilities and stockholders' equity | $ 775,797,659 | $ 769,327,873

|*See Notes to Consolidated Financial Statements* | 
|------------------------------------------------ | 

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|                                                        |                                                            |              |                                    | **2002**    | **2001**   | **2000**  
|------------------------------------------------------- | ---------------------------------------------------------- | ------------ | ---------------------------------- | ----------- | ---------- | ----------
|                                                        |                                                            |              |                                    |             |            |           
|**Interest and Dividend Income**                        |                                                            |              |                                   
|                                                        | Loans receivable                                           | $48,246,747  | $52,018,175                        | $37,810,620
|                                                        | Trading account securities                                 | ---          | ---                                | 8,192      
|                                                        | Investment securities                                      | 1,593,708    | 2,212,568                          | 2,847,684  
|                                                        | Federal Home Loan Bank stock                               | 423,963      | 519,859                            | 457,271    
|                                                        | Deposits with financial institutions                       | 175,042      | 189,272                            | 56,116     
|                                                        |                                                            |              | Total interest and dividend income | 50,439,460  | 54,939,874 | 41,179,883
|                                                        |                                                            |              |                                    |             |            |           
|**Interest Expense**                                    |                                                            |              |                                   
|                                                        | Deposits                                                   | 17,394,703   | 23,314,477                         | 17,543,506 
|                                                        | Federal Home Loan Bank advances                            | 5,652,344    | 5,719,922                          | 4,095,843  
|                                                        | Other interest expense                                     | 71,528       | 46,980                             | 5,497      
|                                                        |                                                            |              | Total interest expense             | 23,118,575  | 29,081,379 | 21,644,846
|                                                        |                                                            |              |                                    |             |            |           
|**Net Interest Income**                                 | 27,320,885                                                 | 25,858,495   | 19,535,037                        
|                                                        | Provision for loan losses                                  | 1,712,483    | 1,281,648                          | 685,000    
|**Net Interest Income After Provision for Loan Losses** | 25,608,402                                                 | 24,576,847   | 18,850,037                        
|                                                        |                                                            |              |                                    |             |            |           
|**Other Income**                                        |                                                            |              |                                   
|                                                        | Service fee income                                         | 2,784,744    | 2,625,649                          | 2,070,326  
|                                                        | Net realized gains (losses) on sales of available-for-sale |              |                                    |            
|                                                        |                                                            | securities   | (2,763)                            | 46,241      | ---       
|                                                        | Net trading assets gain                                    | ---          | ---                                | 25,116     
|                                                        | Commissions                                                | 790,086      | 750,524                            | 560,831    
|                                                        | Equity in losses of limited partnerships                   | (516,509)    | (249,300)                          | (209,948)  
|                                                        | Net gains on sales of loans and servicing                  | 1,368,033    | 1,304,077                          | 143,791    
|                                                        | Increase in cash value of life insurance                   | 1,208,217    | 1,176,000                          | 589,389    
|                                                        | Other income                                               | 316,128      | 448,600                            | 436,146    
|                                                        |                                                            |              | Total other income                 | 5,947,936   | 6,101,791  | 3,615,651 
|                                                        |                                                            |              |                                    |             |            |           
|**Other Expenses**                                      |                                                            |              |                                   
|                                                        | Salaries and employee benefits                             | 12,453,962   | 12,288,117                         | 7,496,211  
|                                                        | Net occupancy expenses                                     | 1,104,617    | 973,568                            | 692,132    
|                                                        | Equipment expenses                                         | 891,202      | 906,636                            | 782,116    
|                                                        | Data processing fees                                       | 760,475      | 780,360                            | 559,631    
|                                                        | Advertising and promotion                                  | 455,143      | 516,487                            | 462,230    
|                                                        | Automated teller machine expense                           | 492,766      | 524,886                            | 457,356    
|                                                        | Other expenses                                             | 3,542,143    | 3,529,753                          | 2,674,940  
|                                                        |                                                            |              | Total other expenses               | 19,700,308  | 19,519,807 | 13,124,616
|                                                        |                                                            |              |                                    |             |            |           
|**Income Before Income Tax**                            | 11,856,030                                                 | 11,158,831   | 9,341,072                         
|                                                        | Income tax expense                                         | 3,376,500    | 3,078,700                          | 3,105,850  
|                                                        |                                                            |              |                                    |             |            |           
|**Net Income**                                          | $  8,479,530                                               | $  8,080,131 | $  6,235,222                      
|                                                        |                                                            |              |                                    |             |            |           
|**Earnings per Share**                                  |                                                            |              |                                   
|                                                        | Basic                                                      | $ 1.55       | $ 1.16                             | $ 1.12     
|                                                        | Diluted                                                    | 1.51         | 1.16                               | 1.12       

|*See Notes to Consolidated Financial Statements* | 
|------------------------------------------------ | 

---

|                              |                                           |                                          |                                | CommonStock | Paid-inCapital | RetainedEarnings | AccumulatedOtherComprehensiveIncome | UnearnedBenefitPlanShares | Total  
|----------------------------- | ----------------------------------------- | ---------------------------------------- | ------------------------------ | ----------- | -------------- | ---------------- | ----------------------------------- | ------------------------- | -------
|                              |                                           |                                          |                                |             |                |                  |                                     |                           |        
|**Balances, January 1, 2000** | $ 58,196                                  | $ 56,740,190                             | $ 44,647,767                   | $ (284,047) | $ (4,449,786)  | $ 96,712,320    
|                              | Comprehensive income                      |                                          |                                |             |                |                  |                                    
|                              |                                           | Net income                               |                                |             | 6,235,222      |                  |                                     | 6,235,222                
|                              |                                           | Other comprehensive income, net of tax - |                                |             |                |                  |                                     |                          
|                              |                                           |                                          | unrealized gains on securities |             |                |                  | 339,575                             |                           | 339,575
|                              | Comprehensive income                      |                                          |                                |             |                |                  | 6,574,797                          
|                              | Cash dividends ($.28 per share)           |                                          |                                | (1,502,418) |                |                  | (1,502,418)                        
|                              | Exercise of stock options                 | 188                                      | 203,886                        |             |                |                  | 204,074                            
|                              | Stock issued in acquisition, net of costs | 25,410                                   | 27,567,304                     |             |                |                  | 27,592,714                         
|                              | ESOP shares earned                        |                                          | 41,905                         |             |                | 318,000          | 359,905                            
|                              |                                           |                                          |                                |             |                |                  |                                     |                           |        
|Balances, December 31, 2000   | 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    

|*See Notes to Consolidated Financial Statements* | 
|------------------------------------------------ | 

---

|                                                 |                                                                        |                                                                   |                                                     | **2002**      | **2001**     | **2000**    
|------------------------------------------------ | ---------------------------------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------------------- | ------------- | ------------ | ------------
|**Operating Activities**                         |                                                                        |                                                                   |                                                    
|                                                 | Net income                                                             | $  8,479,530                                                      | $  8,080,131                                        | $  6,235,222 
|                                                 | Items not requiring (providing) cash                                   |                                                                   |                                                     |              
|                                                 |                                                                        | Provision for loan losses                                         | 1,712,483                                           | 1,281,648     | 685,000     
|                                                 |                                                                        | ESOP shares earned                                                | 585,026                                             | 463,506       | 359,905     
|                                                 |                                                                        | RRP shares earned                                                 | 767,500                                             | 1,394,099     | ---         
|                                                 |                                                                        | Depreciation and amortization                                     | 2,790,952                                           | 3,336,680     | 2,416,172   
|                                                 |                                                                        | Deferred income tax                                               | 363,338                                             | 650,457       | 1,324,430   
|                                                 |                                                                        | Loans originated for sale                                         | (55,029,628)                                        | (66,040,391)  | (11,779,434)
|                                                 |                                                                        | Proceeds from sales on loans held for sale                        | 63,481,603                                          | 59,698,638    | 8,009,898   
|                                                 |                                                                        | Gains on sales of loans held for sale                             | (1,368,033)                                         | (1,304,077)   | (65,130)    
|                                                 | Change in                                                              |                                                                   |                                                     |              
|                                                 |                                                                        | Trading account securities                                        | ---                                                 | ---           | 1,234,884   
|                                                 |                                                                        | Interest receivable                                               | 495,559                                             | 616,615       | (916,078)   
|                                                 |                                                                        | Other assets                                                      | (175,615)                                           | 534,165       | (119,882)   
|                                                 |                                                                        | Interest payable                                                  | (343,963)                                           | (12,512)      | (896,500)   
|                                                 |                                                                        | Other liabilities                                                 | 940,074                                             | 426,810       | (1,510,608) 
|                                                 |                                                                        | Cash surrender value of life insurance                            | (1,208,217)                                         | (1,176,000)   | (589,389)   
|                                                 | Other adjustments                                                      | 642,353                                                           | 1,325,092                                           | 398,881      
|                                                 |                                                                        |                                                                   | Net cash provided by operating activities           | 22,132,962    | 9,274,861    | 4,787,371   
|                                                 |                                                                        |                                                                   |                                                     |               |              |             
|**Investing Activities**                         |                                                                        |                                                                   |                                                    
|                                                 | Purchases of securities available for sale                             | (30,441,236)                                                      | (11,517,408)                                        | (3,489,519)  
|                                                 | Proceeds from maturities and paydowns of securities available for sale | 14,800,015                                                        | 7,331,030                                           | 2,186,922    
|                                                 | Proceeds from sales of securities available for sale                   | 5,000,000                                                         | 10,261,210                                          | ---          
|                                                 | Proceeds from maturities and paydowns of securities held to maturity   | ---                                                               | 7,110,618                                           | 1,893,239    
|                                                 | Proceeds from sales of securities held to maturity                     | ---                                                               | 1,499,928                                           | ---          
|                                                 | Net change in loans                                                    | (13,717,276)                                                      | (1,992,175)                                         | (36,317,394) 
|                                                 | Purchases of premises and equipment                                    | (1,394,578)                                                       | (802,172)                                           | (1,442,449)  
|                                                 | Proceeds from real estate owned sales                                  | 1,081,651                                                         | 184,606                                             | 1,822,824    
|                                                 | Cash received in acquisition, net                                      | ---                                                               | ---                                                 | 6,362,718    
|                                                 | Other investing activities                                             | (129,524)                                                         | (11,988)                                            | (758,940)    
|                                                 |                                                                        |                                                                   | Net cash provided by (used in) investing activities | (24,800,948)  | 12,063,649   | (29,742,599)
|                                                 |                                                                        |                                                                   |                                                     |               |              |             
|**Financing Activities**                         |                                                                        |                                                                   |                                                    
|                                                 | Net change in                                                          |                                                                   |                                                     |              
|                                                 |                                                                        | Noninterest-bearing, interest-bearing demand and savings deposits | 1,325,377                                           | 11,977,689    | (4,841,526) 
|                                                 |                                                                        | Certificates of deposits                                          | 10,160,395                                          | 12,190,945    | 20,938,838  
|                                                 |                                                                        | Securities sold under repurchase agreements                       | ---                                                 | ---           | (840,000)   
|                                                 | Repayment of note payable                                              | (437,470)                                                         | (443,824)                                           | (61,358)     
|                                                 | Proceeds from FHLB advances                                            | 46,280,000                                                        | 192,200,000                                         | 282,000,000  
|                                                 | Repayment of FHLB advances                                             | (38,429,745)                                                      | (197,327,508)                                       | (269,855,188)
|                                                 | Net change in advances by borrowers for taxes and insurance            | (128,616)                                                         | 11,235                                              | (24,268)     
|                                                 | Stock repurchased                                                      | (21,183,942)                                                      | (28,224,373)                                        | ---          
|                                                 | Proceeds from stock options exercised                                  | 39,800                                                            | 53,950                                              | 204,074      
|                                                 | Cash dividends                                                         | (1,895,529)                                                       | (2,265,008)                                         | (1,502,418)  
|                                                 |                                                                        |                                                                   | Net cash provided by (used in) financing activities | (4,269,730)   | (11,826,894) | 26,018,154  
|                                                 |                                                                        |                                                                   |                                                     |               |              |             
|**Net Change in Cash and Cash Equivalents**      | (6,937,716)                                                            | 9,511,616                                                         | 1,062,926                                          
|                                                 |                                                                        |                                                                   |                                                     |               |              |             
|**Cash and Cash Equivalents, Beginning of Year** | 30,557,673                                                             | 21,046,057                                                        | 19,983,131                                         
|                                                 |                                                                        |                                                                   |                                                     |               |              |             
|**Cash and Cash Equivalents, End of Year**       | $23,619,957                                                            | $30,557,673                                                       | $21,046,057                                        
|                                                 |                                                                        |                                                                   |                                                     |               |              |             
|**Additional Cash Flows Information**            |                                                                        |                                                                   |                                                    
|                                                 | Interest paid                                                          | $ 23,462,538                                                      | $ 29,093,891                                        | $ 22,425,869 
|                                                 | Income tax paid                                                        | 3,089,069                                                         | 1,505,000                                           | 2,042,000    
|                                                 | Transfers from loans to foreclosed real estate                         | 1,715,157                                                         | 684,649                                             | 1,307,005    
|                                                 | Loans transferred to held for sale                                     | 15,459,187                                                        | ---                                                 | 7,866,107    
|                                                 | Loans transferred from held for sale                                   | 11,559,158                                                        | ---                                                 | ---          
|                                                 | Mortgage servicing rights capitalized                                  | 524,534                                                           | 581,773                                             | 78,661       
|                                                 | Fair value of net assets in acquisition                                | ---                                                               | ---                                                 | 28,013,809   

|*See Notes to Consolidated Financial Statements* | 
|------------------------------------------------ | 

---

> The accounting and reporting policies of *MutualFirst* Financial, Inc. (Company) and its wholly owned subsidiary, Mutual Federal
> Savings Bank (Bank) and the Bank's wholly owned subsidiaries, First MFSB Corporation and Third MFSB Corporation, conform to
> accounting principles generally accepted in the United States of America and reporting practices followed by the thrift industry. The
> more significant of the policies are described below.
> The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
> requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
> contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
> reporting period. Actual results could differ from those estimates.
> The Company is a thrift holding company whose principal activity is the ownership of the Bank. The Bank operates under a federal
> thrift charter and provides full banking services. As a federally chartered thrift, the Bank is subject to regulation by the Office of
> Thrift Supervision, and the Federal Deposit Insurance Corporation.
> The Bank generates mortgage, consumer and commercial loans and receives deposits from customers located primarily in central
> Indiana. The Bank's loans are generally secured by specific items of collateral including real property, consumer assets and business
> assets. First MFSB sells various insurance products and Third MFSB offers tax-deferred annuities, mutual funds and equity
> securities.**Consolidation** - The consolidated financial statements include the accounts of the Company, the Bank, and the Bank's subsidiaries, 
> 
> after elimination of all material intercompany transactions.**Cash Equivalents -**The Company considers all liquid investments with original maturities of three months or less to be cash
> equivalents.**Investment Securities** - Debt securities are classified as held to maturity when the Company has the positive intent and ability to
> hold the securities to maturity. Securities held to maturity are carried at amortized cost. Debt securities not classified as held to
> maturity and marketable equity securities are classified as available for sale. Securities available for sale are carried at fair value with
> unrealized gains and losses reported separately in accumulated other comprehensive income, net of tax. 
> Amortization of premiums and accretion of discounts are recorded using the interest method as interest income from
> securities. Realized gains and losses are recorded as net security gains (losses). Gains and losses on sales of securities are
> determined on the specific-identification method.

---

> **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 outstanding 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, 2002, 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.

---

> **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 2001 and 2000 consolidated financial statements have been made to conform to the 2002
> 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.**2002**
> **2001**Net income, as reported
> $8,480
> $8,080Less: Stock-based employee compensation cost determinedunder the fair value method, net of income taxes
> (605)
> (292)****Pro forma net income
> $7,875
> $7,788Earnings per shareBasic - as reported
> $ 1.55
> $ 1.16Basic - pro forma
> 1.44
> 1.12Diluted - as reported
> 1.51
> 1.16Diluted - pro forma
> 1.41
> 1.12

> The Bank is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve required at
> December 31, 2002, was $6,944,000.

---

> **2002**AmortizedCost
> **GrossUnrealizedGains**
> **GrossUnrealizedLosses**
> FairValueAvailable for saleMortgage-backed securities
> $  6,615
> $309
> $    ---
> $  6,924Collateralized mortgage obligations
> 9,406
> 116
> (7)
> 9,515Federal agencies
> 1,997
> 86
> ---
> 2,083****
> Small Business Administration
> 241
> ---
> (2)
> 239Corporate obligations
> 7,723
> 308
> ---
> 8,031Marketable equity securities
> 15,456
> 4
> (40)
> 15,420Municipal obligation
> 150
> ---
> ---
> 150****
> Total investment securities
> $41,588
> $823
> $ (49)
> $42,362**2001**AmortizedCost
> **GrossUnrealizedGains**
> **GrossUnrealizedLosses**
> FairValueAvailable for saleMortgage-backed securities
> $  5,613
> $157
> $   (2)
> $  5,768Collateralized mortgage obligations
> 4,867
> 111
> (24)
> 4,954Federal agencies
> 2,940
> 67
> (2)
> 3,005Corporate obligations
> 7,238
> 311
> ---
> 7,549Marketable equity securities
> 10,179
> ---
> (25)
> 10,154Municipal obligation
> 150
> ---
> ---
> 150****
> ****
> Total investment securities
> $30,987
> $646
> $(53)
> $31,580Marketable equity securities consist of shares in mutual funds which invest in government obligations and mortgage-backed
> securities.

---

> The amortized cost and fair value of securities available for sale at December 31, 2002, 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.**2002****AmortizedCost**
> **FairValue**Within one year
> $  3,227
> $  3,268One to five years
> 6,013
> 6,297Five to ten years
> 480
> 549After ten years
> 150
> 1509,870
> 10,264Mortgage-backed securities
> 6,615
> 6,924Collateralized mortgage obligations
> 9,406
> 9,515Small Business Administration
> 241
> 239Marketable equity securities
> 15,456
> 15,420****
> Totals
> $41,588
> $42,362
> The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $14,928,000 at
> December 31, 2002, and $5,049,000 at December 31, 2001.
> 
> 
> Proceeds from sales of securities available for sale during 2002 and 2001 were $5,000,000 and $10,261,000. Gross gains of $3,000
> and $93,000 and gross losses of $6,000 and $69,000 were recognized on those sales in 2002 and 2001. There were no sales of
> securities in 2000.
> 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.
> There were no trading securities at December 31, 2002 or 2001.

---

> **2002**
> **2001**LoansReal estate loansOne-to-four family
> $366,556
> $376,772Multi family
> 8,211
> 10,059Commercial
> 54,252
> 51,503Construction and development
> 14,853
> 16,438443,872
> 454,772Consumer loansAuto
> 32,997
> 33,159Home equity
> 21,515
> 18,365Home improvement
> 20,135
> 19,782Mobile home
> 5,643
> 7,910Recreational vehicles
> 52,672
> 44,700Boats
> 36,530
> 33,904Other
> 3,322
> 4,411172,814
> 162,231Commercial business loans
> 34,660
> 30,092Total loans
> 651,346
> 647,095Undisbursed loans in process
> (7,240)
> (7,669)Unamortized deferred loan fees and costs, net
> 3,293
> 2,658Allowance for loan losses
> (6,286)
> (5,449)Net loans
> $641,113
> $636,635
> 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. 
> **2002**
> **2001**
> **2000**Allowance for loan lossesBalances, January 1
> $5,449
> $6,472
> $3,652Allowance acquired in acquisition
> ---
> ---
> 3,172Provision for losses
> 1,713
> 1,282
> 685Recoveries on loans
> 939
> 61
> 57Loans charged off
> (1,815)
> (2,366)
> (1,094)Balances, December 31
> $6,286
> $5,449
> $6,472

---

> At December 31, 2002 and 2001, accruing loans delinquent 90 days or more totaled $64,000 and $46,000. Non-accruing loans at
> December 31, 2002 and 2001 were $5,032,000 and $6,567,000.
> Information on impaired loans is summarized below.**2002**
> **2001**Impaired loans with an allowance
> $2,141
> $2,690Impaired loans for which the discounted cash flows or collateral valueexceeds the carrying value of the loan
> 210
> ---****
> ****
> Total impaired loans
> $2,351
> $2,690Allowance for impaired loans included in the Company'sallowance for loan losses
> $    321
> $    404**2002**
> **2001**
> **2000**Average balance of impaired loans
> $  3,821
> $ 3,642
> $ 141Interest income recognized on impaired loans
> 24
> 114
> ---Interest income recognized on impaired loans -****
> cash basis
> 8
> 23
> ---

> **2002**
> **2001**CostLand
> $3,067
> $2,285Buildings and land improvements
> 9,010
> 8,981Equipment
> 7,106
> 6,525Total cost
> 19,183
> 17,791Accumulated depreciation and amortization
> (9,996)
> (9,117)****
> ****
> Net
> $9,187
> $8,674

---

> **2002**
> **2001**Pedcor Investments 1987-II (99.00 percent ownership)
> 642
> 748Pedcor Investments 1988-V (98.97 percent ownership)
> 417
> 472Pedcor Investments 1990-XI (19.79 percent ownership)
> 51
> 72Pedcor Investments 1990-XIII (99.00 percent ownership)
> 752
> 698Pedcor Investments 1997-XXVIII (99.00 percent ownership)
> 3,017
> 3,320Pedcor Investments 1997-XXIX (99.00 percent ownership)
> 737
> 367$5,616
> $5,677The 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 and 1997-XXIX 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 $517,000, $249,000 and $210,000 for 2002, 2001 and 2000. In addition, the Company has recorded the benefit of
> low income housing credits of $845,000, $817,000 and $339,000 for 2002, 2001 and 2000. Combined financial statements for the
> limited partnerships recorded under the equity method of accounting are as follows:
> ****
> ****
> ****
> 
> **2002**
> **2001**Combined balance sheets condensedAssetsCash
> $       204
> $       192Land and property
> 29,445
> 30,306Other assets
> 1,281
> 1,402Total assets
> $30,930
> $31,900LiabilitiesNotes payable
> $28,695
> $29,525Other liabilities
> 1,512
> 1,370Total liabilities
> 30,207
> 30,895Partners' equity (deficit)General partners
> (3,705)
> (3,285)Limited partners
> 4,428
> 4,290Total partners' equity
> 723
> 1,005Total liabilities and partners' equity
> $30,930
> $31,900

---

> **2002**
> **2001**
> **2000**Combined condensed statements of operationsTotal revenue
> $4,369
> $3,567
> $3,743Total expenses
> 4,882
> 4,124
> 4,353****
> ****
> Net loss
> $(513)
> $(557)
> $(610)

> **2002**
> **2001**Noninterest-bearing demand
> $  30,058
> $  23,434Interest-bearing demand
> 61,354
> 60,013Passbook
> 54,677
> 49,702Money market savings
> 45,330
> 48,110Certificates and other time deposits of $100,000 or more
> 78,063
> 83,126Other certificates
> 280,882
> 274,493****
> Total deposits
> $550,364
> $538,878
> Certificates including other time deposits of $100,000 or more maturing in years ending December 31:
> 2003
> $207,2802004
> 51,6542005
> 66,2182006
> 8,6922007
> 24,979Thereafter
> 122$358,945

---

> **Maturities Year Ending December 31**
> **Amount**2003
> $   32,0612004
> 30,3032005
> 20,3812006
> 4,9022007
> 518Thereafter
> 27,238$115,403
> At December 31, 2002, the Company has pledged $375,000,000 in qualifying first mortgage loans and investment securities as
> collateral for advances and outstanding letters of credit. Advances, at interest rates from 1.73 to 7.33 percent at December 31, 2002,
> are subject to restrictions or penalties in the event of prepayment.

> The Bank has a noninterest-bearing, unsecured term note payable to Pedcor Investments 1997-XXVIII, L.P. of $1,584,000 and
> $1,646,000 at December 31, 2002 and 2001 payable in semiannual installments through January 1, 2010. At December 31, 2002 and
> 2001, 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 $1,300,000 and $1,613,000 at December 31, 2002 and
> 2001.**Maturities Year Ending December 31**2003
> $   3512004
> 3452005
> 3422006
> 3392007
> 396Thereafter
> 1,111$2,884

---

> Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of these
> loans consist of the following:**2002**
> **2001**
> **2000**Loans serviced forFreddie Mac
> $  89,432
> $  82,629
> $40,585Fannie Mae
> 12,343
> 4,924
> 8,467****
> Federal Home Loan Bank
> 12,081
> ---
> ---Other investors
> 14,680
> 12,993
> 17,559$128,536
> $100,546
> $66,611The aggregate fair value of capitalized mortgage servicing rights at December 31, 2002, 2001 and 2000 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.
> 
> No valuation allowance was necessary at December 31, 2002, 2001 and 2000.**2002**
> **2001**
> **2000**Mortgage Servicing RightsBalances, January 1
> $   879
> $428
> $279Servicing rights acquired
> ---
> ---
> 133****
> Servicing rights capitalized
> 524
> 572
> 79Amortization of servicing rights
> (210)
> (121)
> (63)Balances, December 31
> $1,193
> $879
> $428

---

> **2002**
> **2001**
> **2000**Income tax expenseCurrently payableFederal
> $2,124
> $1,804
> $1,669State
> 889
> 628
> 113DeferredFederal
> 411
> 552
> 864State
> (48)
> 95
> 460****
> ****
> ****
> Total income tax expense
> $3,376
> $3,079
> $3,106Reconciliation of federal statutory to
> actual tax expenseFederal statutory income tax at 34%
> $4,031
> $3,794
> $3,176Effect of state income taxes
> 555
> 477
> 378Low income housing credits
> (843)
> (817)
> (339)Tax-exempt income
> (439)
> (430)
> (217)Other
> 72
> 55
> 108Actual tax expense
> $3,376
> $3,079
> $3,106Effective tax rate
> 28.5%
> 27.6%
> 33.3%

---

> The components of the deferred asset are as follows:**2002**
> **2001****Assets**Allowance for loan losses
> $2,558
> $2,144Deferred compensation
> 2,150
> 1,949Charitable contribution carryover
> 510
> 857Depreciation and amortization
> 320
> 361Business tax and AMT credit carryovers
> 524
> 861Investments in limited partnerships
> ---
> 435Other
> 518
> 328****
> ****
> Total assets
> 6,580
> 6,935**Liabilities**FHLB stock
> (210)
> (210)State income tax
> (222)
> (210)Loan fees
> (1,194)
> (1,358)Investments in limited partnerships
> (28)
> ---Unrealized gain on securities available for sale
> (310)
> (237)Mortgage servicing rights
> (498)
> (366)Total liabilities
> (2,462)
> (2,381)$4,118
> $4,554The Company has a charitable contribution carryover of $1,501,000 that expires in 2005 and unused business income tax credits of
> $351,000 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.

---

> **2002****Before-TaxAmount**
> **TaxExpense**
> **Net-of-TaxAmount**Unrealized gains on securitiesUnrealized holding gains arising during theyear
> $176
> $(70)
> $106Less: reclassification adjustment for lossesrealized in net income
> (3)
> 1
> (2)Net unrealized gains
> $179
> $(71)
> $1082001****
> ****
> 
> **Before-TaxAmount**
> **TaxExpense**
> **Net-of-TaxAmount**Unrealized gains on securitiesUnrealized holding gains arising during theyear
> $549
> $(216)
> $333Less: reclassification adjustment for gainsrealized in net income
> 46
> (13)
> 33Net unrealized gains
> $503
> $(203)
> $300**2000****Before-TaxAmount**
> **TaxExpense**
> **Net-of-TaxAmount**Net unrealized gains on securities
> $563
> $(223)
> $340

> 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.

---

> Financial instruments whose contract amount represents credit risk as of December 31 were as follows:**2002**
> **2001**Loan commitments
> $67,388
> $65,915Standby letters of credit
> 7,039
> 7,269
> 
> 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.

> 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 calendar year plus those for the previous two calendar years. At December 31, 2002, the stockholder's equity of the Bank
> was $91,440,000, of which none is available, without prior regulatory approval, for dividend distribution to the Company.

---

> The Bank is subject to various regulatory capital requirements administered by the federal banking agencies and is assigned to a
> capital category. The assigned capital category is largely determined by three ratios that are calculated according to the regulations:
> total risk adjusted capital, Tier 1 risk-based capital, and core leverage ratios. The ratios are intended to measure capital relative to
> assets and credit risk associated with those assets and off-balance sheet exposures of the entity. The capital category assigned to an
> entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity's activities that
> are not part of the calculated ratios.
> There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification
> of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank's
> operations. At December 31, 2002 and 2001, the Bank was categorized as well capitalized and met all subject capital adequacy
> requirements. There are no conditions or events since December 31, 2002 that management believes have changed the Bank's
> classification.
> The Bank's actual and required capital amounts and ratios are as follows:**Actual**
> **Required for Adequate
> Capital 1**
> **To Be WellCapitalized 1****Amount**
> **Ratio**
> **Amount**
> **Ratio**
> **Amount**
> **Ratio****As of December 31, 2002**Total risk-based capital 1 (to risk-weighted assets)
> $  96,269
> 17.7%
> $43,585
> 8.0%
> $54,482
> 10.0%Tier 1 risk-based capital 1 (to risk-weighted assets)
> 90,055
> 16.5%
> 21,793
> 4.0%
> 32,689
> 6.0%Core capital 1 (to adjusted total assets)
> 90,055
> 11.7%
> 23,142
> 3.0%
> 38,571
> 5.0%Core capital 1 (to adjusted tangible assets)
> 90,055
> 11.7%
> 15,428
> 2.0%
> NA
> NATangible capital 1 (to adjusted total assets)
> 90,055
> 11.7%
> 11,571
> 1.5%
> NA
> NA**As of December 31, 2001**Total risk-based capital 1 (to risk-weighted assets)
> $108,340
> 20.7%
> $41,951
> 8.0%
> $52,439
> 10.0%Tier 1 risk-based capital 1 (to risk-weighted assets)
> 102,969
> 19.6%
> 20,975
> 4.0%
> 31,463
> 6.0%Core capital 1 (to adjusted total assets)
> 102,969
> 13.5%
> 22,912
> 3.0%
> 38,186
> 5.0%Core capital 1 (to adjusted tangible assets)
> 102,969
> 13.5%
> 15,275
> 2.0%
> NA
> NATangible capital 1 (to adjusted total assets)
> 102,969
> 13.5%
> 11,456
> 1.5%
> NA
> NA______________________1 As defined by regulatory agencies

---

> The Company has a retirement savings 401(k) plan in which substantially all employees may participate. The contributions are
> discretionary and determined annually. In 2002, 2001 and 2000, the Company matched employees' contributions at the rate of 50
> percent for the first $600 participant contributions to the 401(k) and made a contribution to the profit-sharing plan of 3 percent of
> qualified compensation. The Company's expense for the plan was $297,000, $253,000 and $216,000 for 2002, 2001 and 2000.
> The Company has a supplemental retirement plan and deferred compensation arrangements for the benefit of certain officers. The
> Company also has deferred compensation arrangements with certain directors whereby, in lieu of currently receiving fees, the
> directors or their beneficiaries will be paid benefits for an established period following the director's retirement or death. These
> arrangements are informally funded by life insurance contracts which have been purchased by the Company. The Company records a
> liability for these vested benefits based on the present value of future payments. The Company's expense for the plan was $695,000,
> $689,000 and $416,000 for 2002, 2001 and 2000.
> The Company has an ESOP covering substantially all of its employees. At December 31, 2002, 2001 and 2000, the Company had
> 349,626, 381,395 and 413,179 unearned ESOP shares with a fair value of $6,916,000, $5,759,000 and $6,094,000. Shares are
> released to participants proportionately as ESOP debt is repaid. Dividends on allocated shares are recorded as dividends and charged
> to retained earnings. Dividends on unallocated shares are used to repay the loan. Compensation expense is recorded equal to the fair
> market value of the stock when contributions, which are determined annually by the Board of Directors of the Company and Bank,
> are made to the ESOP. Expense under the ESOP for 2002, 2001 and 2000 was $585,000, $464,000 and $360,000. At December 31,
> 2002, the ESOP had 80,857 allocated shares, 349,626 suspense shares and 31,783 committed-to-be released shares. At December 31,
> 2001, the ESOP had 52,389 allocated shares, 381,395 suspense shares and 31,784 committed-to-be released shares. At December 31,
> 2000, the ESOP had 20,589 allocated shares, 413,179 suspense shares and 31,800 committed-to-be released shares.
> 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. In 2001, the Company granted 209,000 RRP shares under the plan. Expense recognized on
> the vested shares totaled approximately $768,000 and $1,394,000 in 2002 and 2001. The unearned portion of these stock awards is
> presented as a reduction of stockholders' equity.

---

> Under the Company's stock option plan approved in 2000, 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 each option, which has a 10 or 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. No grants were awarded in 2002 or 2000, except for 58,295 options issued as part of an acquisition in 2000.
> The following is a summary of the status of the Company's stock option plan and changes in that plan for 2002 and 2001.**2002**
> **2001**
> **2000****Options**
> **Shares**
> **Weighted-AverageExercisePrice**
> **Shares**
> **Weighted-AverageExercisePrice**
> **Shares**
> **Weighted-AverageExercisePrice**Outstanding, beginning of year
> 535,714
> $14.30
> 39,521
> $10.97
> ---
> $     ---Granted
> ---
> ---
> 507,000
> 14.50
> 58,295
> ---Exercised
> (3,331)
> 11.95
> (5,807)
> 9.29
> (18,774)
> 10.87Forfeited/expired
> (297)
> 5.37
> (5,000)
> 14.50
> ---
> ---Outstanding, end of year
> 532,086
> 14.32
> 535,714
> 14.30
> 39,521
> 10.97Options exercisable at year end
> 287,420
> 
> 165,714
> 
> 39,521****Weighted-average fair value ofoptions granted during the year
> 
> 
> 
> 2.77

---

> At December 31, 2002, certain information by exercise price for options outstanding and exercisable is as follows:**ExercisePrice**
> **Numberof Shares**
> **Weighted-AverageRemainingContractualLife**
> **Number ofSharesExercisable**$10.87
> 18,774
> 3.7 years
> 18,77412.35
> 13,912
> 4.6 years
> 13,91314.50
> 499,400
> 10.3 years
> 254,733
> 
> 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:
> **2001**Risk-free interest rates
> 5.14%Dividend yields
> 2.19%Volatility factors of expected market price of common stock
> 8.40%Weighted-average expected life of the options
> 8 years

---

> Earnings per share were computed as follows:**2002****Income**
> **Weighted-Average
> Shares**
> **Per-Share
> Amount****Basic Earnings Per Share**Income available to common shareholders
> $8,480
> 5,484,792
> $1.55**Effect of Dilutive Securities**Stock options
> ---
> 113,378
> ---**Diluted Earnings Per Share**Income available to common stockholdersand assumed conversions
> $8,480
> 5,598,170
> $1.51****
> ****
> 
> **2001****Income**
> **Weighted-Average
> Shares**
> **Per-Share
> Amount****Basic Earnings Per Share**Income available to common shareholders
> $8,080
> 6,949,879
> $1.16**Effect of Dilutive Securities**Stock options
> ---
> 14,426
> ---**Diluted Earnings Per Share**Income available to common stockholdersand assumed conversions
> $8,080
> 6,964,305
> $1.16**2000****Income**
> **Weighted-Average
> Shares**
> **Per-Share
> Amount****Basic Earnings Per Share**Income available to common shareholders
> $6,235
> 5,557,775
> $1.12**Effect of Dilutive Securities**Stock options
> ---
> 602
> ---**Diluted Earnings Per Share**Income available to common stockholdersand assumed conversions
> $6,235
> 5,558,377
> $1.12

---

> The following methods and assumptions were used to estimate the fair value of each class of financial instrument: **Cash and Cash Equivalents** - The fair value of cash and cash equivalents approximates carrying value.**Investment and Mortgage-Backed Securities** - Fair values are based on quoted market prices.**Loans Held For Sale -**Fair values are based on quoted market prices.**Loans** - The fair value for loans are estimated using discounted cash flow analyses using interest rates currently being offered for
> loans with similar terms to borrowers of similar credit quality.**FHLB Stock** - Fair value of FHLB stock is based on the price at which it may be resold to the FHLB.**Cash Value of Life Insurance** - The fair value of life insurance values approximate carrying value.**Interest Receivable/Payable** - The fair values of interest receivable/payable approximate carrying values.**Deposits** - The fair values of noninterest-bearing, interest-bearing demand and savings accounts are equal to the amount payable on
> demand at the balance sheet date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow
> calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities
> on such time deposits.**Federal Home Loan Bank Advances** - The fair value of these borrowings are estimated using a discounted cash flow calculation,
> based on current rates for similar debt for periods comparable to the remaining terms to maturity of these advances.**Notes Payable**- The fair value of this note is estimated using a discount calculation based on current rates.**Advances by Borrowers for Taxes and Insurance** - The fair value approximates carrying value.**Off-Balance Sheet Commitments** - Commitments include commitments to purchase and originate mortgage loans, commitments to
> sell mortgage loans, and standby letters of credit and are generally of a short-term nature. The fair values of such commitments are
> based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the
> counterparties' credit standing. The carrying amount of these investments are reasonable estimates of the fair value of these financial
> statements.

---

> The estimated fair values of the Company's financial instruments are as follows:**2002**
> **2001****CarryingAmount**
> **FairValue**
> **CarryingAmount**
> **FairValue****Assets**Cash and cash equivalents
> $  23,620
> $  23,620
> $  30,558
> $  30,558Securities available for sale
> 42,362
> 42,362
> 31,580
> 31,580Loans held for sale
> 7,851
> 7,965
> 11,559
> 11,586Loans
> 641,113
> 656,643
> 636,635
> 650,212Stock in FHLB
> 6,993
> 6,993
> 6,993
> 6,993Cash value of life insurance
> 25,439
> 25,439
> 24,231
> 24,231Interest receivable
> 3,201
> 3,201
> 3,697
> 3,697**Liabilities**Deposits
> 550,364
> 550,880
> 538,878
> 539,883FHLB Advances
> 115,403
> 126,336
> 107,485
> 112,026Notes payable
> 2,884
> 2,369
> 3,259
> 2,693Interest payable
> 1,016
> 1,016
> 1,360
> 1,360****
> Advances by borrowers for taxes and insurance
> 1,335
> 1,335
> 1,463
> 1,463

---

> Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company:**Condensed Balance Sheets****2002**
> **2001****Assets**Cash on deposit with Bank
> $  2,355
> $       831Cash on deposit with others
> 17
> 112Total cash and cash equivalents
> 2,372
> 943Investment securities available for sale
> ---
> 1,001Loans receivable
> 1,250
> 2,500Investment in common stock of Bank
> 91,440
> 104,377Deferred income tax
> 621
> 857Other assets
> 866
> 133Total assets
> $96,549
> $109,811**Liabilities** - other
> $  (168)
> $         67**Stockholders' Equity**
> 96,717
> 109,744****
> ****
> Total liabilities and stockholders' equity
> $96,549
> $109,811

---

> **Condensed Statements of Income****2002**
> **2001**
> **2000****Income**Interest income from Bank
> $       29
> $       401
> $   904Interest income from investments
> 8
> 136
> 158Interest income from loans
> 324
> 404
> ---Dividends from Bank
> 21,500
> 10,000
> ---Other income
> 137
> 4
> ---Total income
> 21,998
> 10,945
> 1,062**Expenses**Interest expense
> 9
> ---
> ---Other
> 221
> 181
> 120Total expenses
> 230
> 181
> 120**Income before income tax and equity in****undistributed income of subsidiary**
> 21,768
> 10,764
> 942**Income tax expense**
> 105
> 297
> 374**Income before equity in undistributed income****of subsidiary**
> 21,663
> 10,467
> 568****
> ******Equity in undistributed income of subsidiary**
> (13,183)
> (2,387)
> 5,667**Net Income**
> $  8,480
> $  8,080
> $6,235

---

> **Condensed Statements of Cash Flows****2002**
> **2001**
> **2000****Operating Activities**Net income
> $  8,480
> $ 8,080
> $ 6,235Item not requiring (providing) cashESOP shares earned
> 585
> 464
> 360Deferred income tax benefit
> 236
> 289
> 246Distributions in excess of earnings (undistributed income)****
> of Bank
> 13,183
> 2,387
> (5,667)Other
> (266)
> 276
> (488)Net cash provided by operating activities
> 22,218
> 11,496
> 686**Investing Activities**Cash received in acquisition, net
> ---
> ---
> 630Net change in loans
> 1,250
> 389
> ---Purchase of securities available for sale
> ---
> ---
> (2,498)Proceeds from sales of securities available for sale
> ---
> 503
> ---Proceeds from maturities of securities available for sale
> 1,001
> 1,000
> ---Net cash provided by (used in) investing activities
> 2,251
> 1,892
> (1,868)**Financing Activities**Stock repurchased
> (21,184)
> (28,224)
> ---Cash dividends
> (1,896)
> (2,265)
> (1,502)Proceeds from stock options exercised
> 40
> 54
> 204Net cash used in financing activities
> (23,040)
> (30,435)
> (1,298)****
> ******Net Change in Cash and Cash Equivalents**
> 1,429
> (17,047)
> (2,480)**Cash and Cash Equivalents, Beginning of Year**
> 943
> 17,990
> 20,470**Cash and Cash Equivalents, End of Year**
> $ 2,372
> $ 943
> $ 17,990**Additional Cash Flow and Supplementary Information**Fair value of stock issued in acquisition of Marion
> $ ---
> $ ---
> $ 27,804Fair value of net assets, excluding cash, in acquisition
> ---
> ---
> 2,411

---

|**Board of Directors**

Wilbur R. Davis

Chairman of the Boards of *MutualFirst*Financial

and Mutual Federal Savings Bank;

President, Ontario Systems Corporation
Julie A. Skinner

Vice Chairman of the Boards of *MutualFirst*Financial

and Mutual Federal Savings Bank; civic leader
R. Donn Roberts

President and Chief Executive Officer of *MutualFirst*

Financial and Mutual Federal Savings Bank
Edward J. Dobrow

President, D&M Leasing
Linn A. Crull

Certified Public Accountant;

Member/Owner, Whitinger & Company, LLC
James D. Rosema

President, Rosema Corporation
William V. Hughes

Attorney, Partner in Beasley & Gilkison, LLP | Steven L. Banks

Senior Vice President of *MutualFirst*Financial

and Mutual Federal Savings Bank
John M. Dalton

Former Chairman, President and Chief Executive

Officer of Marion Capital Holdings
Jon R. Marler

President, Carico Systems;

Senior Vice President, Ralph M. Williams and

Associates; President, Empire Real Estate
Jerry D. McVicker

Interim Superintendent, Marion Community Schools**Officers**

R. Donn Roberts, President and Chief Executive

Officer

David W. Heeter, Executive Vice President

Timothy J. McArdle, Senior Vice President and

Treasurer

Steven L. Banks, Senior Vice President

Rosalie Petro, Secretary
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|**Board of Directors**

The Directors of *MutualFirst*Financial, Inc. also serve

as the Board of Directors of Mutual Federal Savings

Bank.**Senior Directors**

Charles R. McCormick, Senior Director

Jack E. Buckles, Senior Director

G. Richard Benson, Senior Director**Winchester Advisory Board**

Kenneth W. Girton, Advisory Director

Robert Morris, Advisory Director

Clark G. Loney, Advisory Director

Gene Gulley, Senior Advisory Director | **Warsaw Advisory Board**

Candace Wolkins, Advisory Director

John Sadler, Advisory Director

David Carey, Advisory Director

Stephen Harris, Advisory Director

Phillip J. Harris, Senior Advisory Director

J. Kevin Zachary, Senior Advisory Director
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|*Transfer Agent:*                    | **                                                                                                                        |   
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------- | --
|                                     | Continental Stock Transfer & Trust Company

17 Battery Place

New York, New York 10004

(212) 509-4000                    | **
|                                     |                                                                                                                           |   
|*General Counsel:*                   | *Special Counsel:*                                                                                                       
|**                                   | Beasley & Gilkison, LLP

110 E. Charles St.

Muncie, IN 47305                                                             | **
|**                                   |                                                                                                                           |   
|*Independent Auditor:*               | **                                                                                                                        |   
|                                     | BKD, LLP

201 N. Illinois, Suite 700

Indianapolis, IN 46204                                                              | **
|                                     |                                                                                                                           |   
|*Shareholder and General Inquiries:* | **                                                                                                                       
|                                     | R. Donn Roberts
President & Chief Executive Officer *MutualFirst*Financial, Inc.

110 E. Charles Street

Muncie, IN 47305 | **

|                                | Stock Price | Dividends per Share
|------------------------------- | ----------- | -------------------
|**Quarter Ending:**             | **High**    | **Low**            
|First Quarter (ended 03/31/01)  | $15.125     | $13.875            
|Second Quarter (ended 06/30/01) | $14.65      | $13.938            
|Third Quarter (ended 09/30/01)  | $15.39      | $14.34             
|Fourth Quarter (ended 12/31/01) | $15.20      | $14.50             
|                                |             |                    
|                                | Stock Price | Dividends per Share
|**Quarter Ending:**             | **High**    | **Low**            
|First Quarter (ended 03/31/02)  | $18.300     | $14.900            
|Second Quarter (ended 06/30/02) | $19.800     | $18.050            
|Third Quarter (ended 09/30/02)  | $20.590     | $17.900            
|Fourth Quarter (ended 12/31/02) | $19.770     | $18.730            

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