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**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549**

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****FORM 10-K****
| [X]            | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934     |
|----------------|------------------------------------------------------------------------------------------|
|                | For the fiscal year ended December 31, 2004                                         |
|                |                                                                                          |
|                | OR                                                                                       |
| [  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                | For the transition period from __________________ to __________________                  |

****COMMISSION FILE NUMBER 000-27905****
*****MutualFirst* Financial, Inc.**(Exact Name of Registrant as Specified in its Charter)**
| **Maryland**(State or other jurisdiction of incorporation or organization)         | **35-2085640**(I.R.S. Employer Identification No.) |
|------------------------------------------------------------------------------------|----------------------------------------------------|
|                                                                               |
| **110 E. Charles Street, Muncie, Indiana**(Address of principal executive offices) | **47305-2419**(Zip Code)                           |

**Registrant's telephone number, including area code: **(765) 747-2800****
**Securities Registered Pursuant to Section 12(b) of the Act:**
**None**
**Securities Registered Pursuant to Section 12(g) of the Act:**
**Common Stock, par value $.01 per share(Title of Class)**

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

             Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference inPart III of this Form 10-K or any amendment to this Form 10-K.   [X]

             Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of theAct).            YES [X] NO [ ]

             The aggregate market value of the voting and non-voting common equityheld by non-affiliates, computed by reference to the last sale price of such stock on the Nasdaq National Market as of June 30, 2004, the last business day of the registrant's most recently completedsecond fiscal quarter, was approximately $86.7 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant thatsuch person is an affiliate of the registrant.)

             As of March 3, 2005, there were issued and outstanding 4,686,564shares of the registrant's common stock.

****DOCUMENTS INCORPORATED BY REFERENCE****

PART III of Form 10-K--Portions of registrant's Proxy Statement for its 2005 Annual Meeting of Stockholders.

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**Item 1. Business**

**General**

             *MutualFirst* Financial, Inc., a Maryland corporation, is a savings and loan holding company that has as itswholly-owned subsidiary Mutual Federal Savings Bank ("Mutual Federal"). MFS Financial was formed in September 1999 to become the holding company of Mutual Federal in connection with Mutual Federal'sconversion from the mutual to stock form of organization on December 29, 1999. In April 2000, MFS Financial formally changed its corporate name to *MutualFirst* Financial, Inc.("*MutualFirst*"). The words "we," "our" and "us" refer to *MutualFirst* and Mutual Federal on a consolidated basis.

             At December 31, 2004, we had total assets of $839.4 million, deposits of $600.4 million and stockholders' equity of$87.9 million. Our executive offices are located at 110 E. Charles Street, Muncie, Indiana 47305-2400 and our common stock is traded on the Nasdaq National Market under the symbol "MFSF."

             Substantially all of *MutualFirst*'s business is conducted through Mutual Federal, a federal savings bank.Mutual Federal is subject to extensive regulation by the Office of Thrift Supervision ("OTS"), and its deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation("FDIC"). On March 3, 2005, Mutual Federal announced that it had entered into a definitive agreement to purchase assets and assume liabilities representing substantially all of the operations ofFidelity Federal Savings Bank of Marion, Indiana. Mutual Federal will pay $20 million in cash for these net assets, subject to adjustment. Fidelity Federal Savings Bank is a subsidiary of FirstFinancial Bancorp. The acquisition, which is subject to regulatory approval, is expected to close during the third quarter of 2005.

             Our principal business consists of attracting retail deposits from the general public and investing those fundsprimarily in loans secured by first mortgages on owner-occupied, one- to four-family residences, a variety of consumer loans, loans secured by commercial and multi-family real estate and commercialbusiness loans. Funds not invested in loans generally are invested in investment securities and mortgage-backed and mortgage-related securities.

             Our profitability depends primarily on net interest income, which is the difference between interest and dividendincome on interest-earning assets, and interest expense on interest-bearing liabilities. Interest-earning assets include principally loans, investment securities, mortgage-backed and relatedsecurities and interest-earning deposits in other institutions. Net interest income is dependent upon the level of interest rates and the extent to which such rates are changing. Our profitability isalso dependent, to a lesser extent, on the level of noninterest income, provision for loan losses, noninterest expense and income taxes. Our operations and profitability are subject to changes ininterest rates, applicable statutes and regulations, and general economic conditions, as well as other factors beyond our control.

             We offer deposit accounts having a wide range of interest rates and terms, which generally include passbook andstatement savings accounts, money market deposit accounts, NOW and non-interest bearing

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**Forward-Looking Statements**

             This Form 10-K contains various forward-looking statements that are based on assumptions and describe our future plansand strategies and our expectations. These forward-looking statements are generally identified by words such as "believe," "expect," "intend," "anticipate," "estimate," "project," or similar words.Our ability to predict results or the actual effect of future plans or strategies is uncertain. Factors which could cause actual results to differ materially from those estimated include, but are notlimited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury andthe Federal Reserve Board, the quality and composition of our loan and investment portfolios, demand for our loan products, deposit flows, our operating expenses, competition, demand for financialservices in our market areas and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements, and you should not rely too much onthese statements. We do not undertake, and specifically disclaim, any obligation to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statementsor to reflect the occurrence of anticipated or unanticipated events.

**Market Area**

             We are a community-oriented financial institution offering a variety of financial services to meet the needs of thecommunities we serve. We are headquartered in Muncie, Indiana and we offer our financial services through 17 retail offices primarily serving Delaware, Randolph, Kosciusko and Grant counties inIndiana. We also originate mortgage loans in the contiguous counties and we originate indirect consumer loans throughout Indiana. See "Lending Activities -- Consumer and Other Lending."

**Lending Activities**

             ***General.*** Our mortgage loans carry either a fixed or an adjustable rate of interest. Mortgageloans are generally long-term and amortize on a monthly basis with principal and interest due each month. At December 31, 2004, our net loan portfolio totaled $715.9 million, which constituted 85.3%of our total assets.

             Loans up to $550,000 may be approved by individual loan officers. Loans in excess of $550,000, but not in excess of$1.0 million, require the signature of the recommending officer and signatures from any two Executive Loan Committee members. The recommending officer may be one of the Executive Loan Committeemembers approving the loan. Loans in amounts greater than $1.0 million, but not to exceed $1.5 million, require the signature of the recommending officer and any three Executive Loan Committeemembers. Loans not to exceed $1.5 million, to a borrower whose aggregate debt is not greater than $3.0 million, may be approved by a majority vote of the Executive Loan Committee. All loans in excessof $1.5 million and loans of

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             At December 31, 2004, the maximum amount which we could lend to any one borrower and the borrower's related entitieswas approximately $12.7 million. At December 31, 2004, our largest lending relationship to a single borrower or a group of related borrowers consisted of four loans totaling $3.9 million. One ofthese loans is unsecured. Two are secured by newly constructed auto service centers. The last one is secured by a drive-in/carry-out food establishment. Each loan has independent income streamssufficient to support debt service requirements. Each of the loans to this group of borrowers was current and performing in accordance with its terms at December 31, 2004.

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         The following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages as of the datesindicated.

|                                                             | December 31,               |
|-------------------------------------------------------------|----------------------------|
|                                                             | 2004                       | 2003 | 2002 | 2001 | 2000 |
|                                                             | Amount                     | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent |
|                                                             | (Dollars in Thousands)     |
| Real Estate Loans:                                          |
|   One- to four-family                             | $385,678(1)                | 52.96% | $393,450(2) | 54.86% | $374,407(3) | 56.80% | $388,331  | 58.96% | $392,832  | 60.19% |
|   Multi-family                                    | 4,657       | .64    | 5,353    | .75    | 8,211    | 1.25    | 10,059  | 1.53    | 9,787  | 1.50    |
|   Commercial                                      | 68,067      | 9.35    | 65,430    | 9.12    | 54,252    | 8.23    | 51,503  | 7.82    | 53,197  | 8.15    |
|   Construction and development                    | 20,745      | 2.85    | 17,860    | 2.49    | 14,853    | 2.25    | 16,438  | 2.49    | 13,591  | 2.08    |
|       Total real estate loans | 479,147     | 65.80    | 482,093    | 67.22    | 451,723    | 68.53    | 466,331  | 70.80    | 469,407  | 71.92    |
| Other Loans:                                                |                            |  |  |  |  |  |  |  |  |  |
|   Consumer Loans:                                 |                            |  |  |  |  |  |  |  |  |  |
|     Automobile                          | 39,475      | 5.42    | 40,497    | 5.65    | 32,997    | 5.01    | 33,159  | 5.03    | 28,909  | 4.43    |
|     Home equity                         | 29,464      | 4.05    | 25,401    | 3.54    | 21,515    | 3.26    | 18,365  | 2.79    | 17,428  | 2.67    |
|     Home improvement                    | 23,289      | 3.20    | 20,924   | 2.92    | 20,135    | 3.05    | 19,782  | 3.00    | 23,304  | 3.57    |
|     Manufactured housing                | 2,879       | .40    | 4,108    | .57    | 5,643    | .86    | 7,910  | 1.20    | 9,865  | 1.51    |
|     R.V.                                | 58,643      | 8.05  | 58,222    | 8.12    | 52,672    | 7.99    | 44,700  | 6.79    | 34,744  | 5.32    |
|     Boat                                | 38,382      | 5.27    | 38,096    | 5.31    | 36,530    | 5.54    | 33,904  | 5.15     | 35,180  | 5.39    |
|     Other                               | 3,325       | .46    | 3,443    | .48    | 3,322    | .50    | 4,411  | .67    | 7,508  | 1.15    |
|       Total consumer loans    | 195,457     | 26.84    | 190,691    | 26.59    | 172,814    | 26.21    | 162,231  | 24.63    | 156,938  | 24.04    |
| Commercial business loans                                   | 53,620      | 7.36    | 44,362    | 6.19    | 34,660    | 5.26    | 30,092  | 4.57    | 26,375  | 4.04    |
|       Total other loans       | 249,077     | 34.20    | 235,053    | 32.78    | 207,474    | 31.47    | 192,323  | 29.20    | 183,313  | 28.08    |
| Total loans receivable, gross                               | 728,224(1)                 | 100.00% | 717,146(2) | 100.00% | 659,197(3) | 100.00% | 658,654  | 100.00% | 652,720  | 100.00% |
|                                                             |                            |  |  |  |  |  |  |  |  |  |
| Less:                                                       |                            |  |  |  |  |  |  |  |  |  |
|   Undisbursed portion of loans                    | 9,237       |  | 8,160    |  | 7,240    |  | 7,669  |  | 5,247  |  |
|   Deferred loan fees and costs                    | (3,814)          |  | (3,749)   |  | (3,293)   |  | (2,658) |  | (2,274) |  |
|   Allowance for losses                            | 6,867       |  | 6,779    |  | 6,286    |  | 5,449  |  | 6,472  |  |
|   Total loans receivable, net                     | $715,934    |  | $705,956    |  | $648,964    |  | $648,194  |  | $643,275  |  |

_______________(1)  Includes loans held for sale of $2.9 million.(2)  Includes loans held for sale of $2.0 million.(3)  Includes loans held for sale of $7.9 million.

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         The following table shows the composition of our loan portfolio by fixed- and adjustable-rate at the dates indicated.

|                                                                     | December 31,               |
|---------------------------------------------------------------------|----------------------------|
|                                                                     | 2004                       | 2003 | 2002 | 2001 | 2000 |
|                                                                     | Amount                     | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent |
|                                                                     | (Dollars in Thousands)     |
| Fixed-Rate Loans:                                                   |
|   Real estate:    One- to four-family | $262,716(1)                | 38.08% | $281,497(2) | 39.25% | $250,484(3) | 38.00% | $215,281  | 32.69% | $179,656  | 27.52% |
|     Multi-family                                | 3,427       | .47    | 3,483    | .49    | 3,622    | .55    | 4,630  | .70    | 3,248  | 0.50    |
|     Commercial                                  | 6,918       | .95    | 6,960    | .97    | 7,044    | 1.07    | 8,879  | 1.35    | 10,197  | 1.56    |
|     Construction and development                | 15,191      | 2.09    | 13,946    | 1.94    | 12,290    | 1.86    | 12,437  | 1.88    | 6,713  | 1.03    |
|       Total real estate loans         | 288,251     | 39.58    | 305,886    | 42.65    | 273,440    | 41.48    | 241,227  | 36.62    | 199,814  | 30.61    |
|                                                                |
|   Consumer                                                | 165,895     | 22.78    | 165,182    | 23.03    | 151,199    | 22.94    | 143,772  | 21.83  | 137,003  | 20.99    |
|   Commercial business                                     | 16,347      | 2.24    | 12,099    | 1.69    | 11,251    | 1.70    | 15,416  | 2.34    | 11,607  | 1.78    |
|       Total fixed-rate loans          | 470,493     | 64.61    | 483,167    | 67.37    | 435,890    | 66.12    | 400,415  | 60.79    | 348,424  | 53.38    |
| Adjustable-Rate Loans:                                              |
|   Real estate:                                            |
|     One- to four-family                         | 122,962     | 16.89    | 111,953    | 15.61    | 123,923    | 18.80    | 173,050  | 26.27    | 213,176  | 32.66    |
|     Multi-family                                | 1,230       | .17    | 1,870    | .26    | 4,589    | .70    | 5,429  | .83    | 6,539  | 1.00    |
|     Commercial                                  | 61,149      | 8.40    | 58,470    | 8.15    | 47,208    | 7.16    | 42,624  | 6.47    | 43,000  | 6.59    |
|     Construction and development                | 5,554       | .76    | 3,914    | .55    | 2,563    | .39    | 4,001  | .61    | 6,878  | 1.05    |
|       Total real estate loans         | 190,895     | 26.21    | 176,207    | 24.57    | 178,283    | 27.05    | 225,104  | 34.18    | 269,593  | 41.30    |
|                                                                |
|   Consumer                                                | 29,562      | 4.06    | 25,509    | 3.56    | 21,615    | 3.28    | 18,459  | 2.80    | 19,935    | 3.06    |
|   Commercial business                                     | 37,273      | 5.12    | 32,263    | 4.50    | 23,409    | 3.55    | 14,676  | 2.23    | 14,768  | 2.26    |
|       Total adjustable-rate loans     | 257,730     | 35.39    | 233,979    | 32.63    | 223,307    | 33.88    | 258,239  | 39.21    | 304,296  | 46.62    |
|       Total loans                     | 728,224(1)                 | 100.00% | 717,146(2) | 100.00% | 659,197(3) | 100.00% | 658,654 | 100.00% | 652,720 | 100.00% |
|                                                                     |                            |  |  |  |  |  |  |  |  |  |
| Less:                                                               |
|   Undisbursed portion of loans                            | 9,237       |  | 8,160    |  | 7,240    |  | 7,669  |  | 5,247  |  |
|   Deferred loan fees and costs                            | (3,814)          |  | (3,749)   |  | (3,293)   |  | (2,658) |  | (2,274) |  |
|   Allowance for loan losses                               | 6,867       |  | 6,779    |  | 6,286    |  | 5,449  |  | 6,472  |  |
|       Total loans receivable, net     | $715,934    |  | $705,956    |  | $648,964    |  | $648,194  |  | $643,275  |  |

________________

(1)  Includes loans held for sale of $2.9 million.(2)  Includes loans held for sale of $2.0 million.(3)  Includes loans held for sale of $7.9 million.

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         The following schedule illustrates the contractual maturity of our loan portfolio at December 31, 2004. Mortgages that have adjustable orrenegotiable interest rates are shown as maturing in the period during which the contract is due. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-saleclauses.

**Real EstateOne- to Four-Family(1)Multi-family andCommercialConstructionand Development(2)ConsumerCommercialBusinessTotalAmountWeightedAverageRateAmountWeightedAverageRateAmountWeightedAverageRateAmountWeightedAverageRateAmountWeightedAverageRateAmountWeightedAverageRate(Dollars in Thousands)Due DuringYears EndingDecember 31,2005(3)$   2677.773%2,0447.527%$ 1,0194.499%$ 4,2966.488%$20,1336.782%$27,7596.717%20063576.305   4706.272   409.702   4,6267.931   4,9855.046   10,4786.435   20071,0136.594   6017.351   586.515   8,7826.992   8,9106.366   19,3646.693   2008 and 20095,6016.330   8,9726.378   2446.460   35,0885.912   9,8366.622   59,7416.140   2010 to 20117,0605.977   5,3745.983   148.050   18,2617.204   1,0376.685   31,7466.708   2012 to 2026218,3715.641   55,2636.854   5,1355.298   124,3476.880   8,7196.544   411,8356.193   2027 and following150,0965.678   ------   14,2355.531   5710.694   ------   164,3885.667       Total$382,765$72,724$20,745$195,457$53,620$725,311**

________________(1)  Does not include mortgage loans held for sale.(2)  Once the construction phase has been completed, these loans will automatically convert to permanent financing.(3)  Includes demand loans, loans having no stated maturity and overdraft loans.

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         The total amount of loans due after December 31, 2005 which have predetermined interest rates is $453.9 million, and the total amount of loansdue after such date which have floating or adjustable interest rates is $243.6 million.

         ***One- to Four-Family Residential Real Estate Lending.*** We focus our real estate lending efforts primarily on theorigination of loans secured by first mortgages on owner-occupied, one- to four-family residences in our market areas. At December 31, 2004, one- to four-family residential mortgage loans totaled$385.7 million, or 53.0% of our gross loan portfolio.

         We generally underwrite our one- to four-family loans based on the loan applicant's employment and credit history and the appraised value ofthe subject property. Presently, we lend up to 100% of the lesser of the appraised value or purchase price for one- to four-family residential loans. For loans with a loan-to-value ratio in excess of80%, we generally require private mortgage insurance in order to reduce our exposure to below 80%. Properties securing our one- to four-family loans are appraised by independent state licensed feeappraisers approved by Mutual Federal's board of directors. We require borrowers to obtain title insurance in the amount of their mortgage. Hazard insurance and flood insurance, if necessary, isrequired in an amount not less than the value of the property improvements.

         We originate one- to four-family mortgage loans on either a fixed- or adjustable-rate basis, as consumer demand dictates. Our pricing strategyfor mortgage loans includes setting interest rates that are competitive with Freddie Mac and other local financial institutions and are consistent with our internal needs. Adjustable-rate mortgage orARM loans are offered with a one-year, three-year, five-year or seven-year term to the initial repricing date. After the initial period, the interest rate for each ARM loan adjusts annually for theremainder of the term of the loan. We use the weekly average of the one-year Treasury Bill Constant Maturity Index to reprice our ARM loans. During fiscal 2004, we originated $44.8 million of one- tofour-family ARM loans and $72.6 million of one- to four-family fixed-rate mortgage loans. By way of comparison, during fiscal 2003, we originated $36.1 million of one- to four-family ARM loans, and$187.9 million of one- to four-family fixed-rate mortgage loans.

         Fixed-rate loans secured by one- to four-family residences have contractual maturities of up to 30 years and are generally fully amortizing,with payments due monthly. These loans normally remain outstanding, however, for a substantially shorter period of time because of refinancing and other prepayments. A significant change in interestrates could alter considerably the average life of a residential loan in our portfolio. Our one- to four-family loans are generally not assumable, do not contain prepayment penalties and do notpermit negative amortization of principal. Most are written using underwriting guidelines which make them saleable in the secondary market. Our real estate loans generally contain a "due on sale"clause allowing us to declare the unpaid principal balance due and payable upon the sale of the security property.

         Our one- to four-family residential ARM loans are fully amortizing loans with contractual maturities of up to 30 years, with payments duemonthly. Our ARM loans generally provide for specified minimum and maximum interest rates, with a lifetime cap and floor, and a periodic adjustment on the interest rate over the rate in effect on thedate of origination. As a consequence of using caps, the interest rates on these loans may not be as rate sensitive as is our cost of funds. We offer a one-year ARM loan that is convertible into afixed-rate loan. When these loans convert, they may be sold in the secondary market.

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         In order to remain competitive in our market areas, we sometimes originate ARM loans at initial rates below the fully indexed rate. ARM loansgenerally pose different credit risks than fixed-rate loans, primarily because as interest rates rise, the borrower's payment rises, increasing the potential for default. We have not experienceddifficulty with the payment history for these loans. See "Asset Quality -- Non-performing Assets" and "-- Classified Assets." At December 31, 2004, our one- to four-family ARM loan portfolio totaled$123.0 million, or 16.9% of our gross loan portfolio. At that date, the fixed-rate one- to four-family mortgage loan portfolio totaled $262.7 million, or 36.1% of our gross loan portfolio.

         ***Multi-family and Commercial Real Estate Lending***. We offer a variety of multi-family and commercial real estate loansfor acquisition, renovation or construction. These loans are secured by the real estate and improvements financed. The collateral securing these loans ranges from industrial commercial buildings tochurches, office buildings and multi-family housing complexes. At December 31, 2004, multi-family and commercial real estate loans totaled $72.7 million, or 10.0% of our gross loan portfolio.

         Our loans secured by multi-family and commercial real estate are originated with either a fixed or adjustable interest rate. The interest rateon adjustable-rate loans is based on a variety of indices, generally determined through negotiation with the borrower. Loan-to-value ratios on our multi-family and commercial real estate loanstypically do not exceed 80% of the appraised value of the property securing the loan. These loans typically require monthly payments, may not be fully amortizing and have maximum maturities of 25years.

         Loans secured by multi-family and commercial real estate are underwritten based on the income producing potential of the property and thefinancial strength of the borrower. The net operating income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the paymentsrelated to the outstanding debt. We generally require personal guarantees of the borrowers in addition to the security property as collateral for such loans. We also generally require an assignmentof rents or leases in order to be assured that the cash flow from the project will be used to repay the debt. Appraisals on properties securing multi-family and commercial real estate loans areperformed by independent state licensed fee appraisers approved by Mutual Federal's Board of Directors. See "Loan Originations, Purchases, Sales and Repayments."

         We generally do not maintain a tax or insurance escrow account for loans secured by multi-family and commercial real estate. In order tomonitor the adequacy of cash flows on income-producing properties, the borrower is requested or required to provide periodic financial information.

         Loans secured by multi-family and commercial real estate are generally larger and involve a greater degree of credit risk than one- tofour-family residential mortgage loans. Multi-family and commercial real estate loans typically involve large balances to single borrowers or groups of related borrowers. Because payments on loanssecured by multi-family and commercial real estate are often dependent on the successful

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         ***Construction and Development Lending***. We originate construction loans primarily secured by existing residentialbuilding lots. We make construction loans to builders and to individuals for the construction of their residences. Substantially all of these loans are secured by properties located within our marketarea. At December 31, 2004, we had $20.7 million in construction and development loans outstanding, representing 2.9% of our gross loan portfolio.

         Construction and development loans are obtained through continued business with builders who have previously borrowed from us, from walk-incustomers and through referrals from realtors and architects. The application process includes submission of complete plans, specifications and costs of the project to be constructed. Thisinformation and an independent appraisal is used to determine the value of the subject property. Loans are based on the lesser of the current appraised value and/or the cost of construction,including the land and the building. We generally conduct regular inspections of the construction project being financed.

         Construction loans for one- to four-family homes are generally granted with a construction period of up to nine months. During theconstruction phase, the borrower generally pays interest only on a monthly basis. Loan-to-value ratios on our construction and development loans typically do not exceed 90% of the appraised value ofthe project on an as completed basis. Single family construction loans with loan-to-value ratios over 90% usually require private mortgage insurance.

         Because of the uncertainties inherent in estimating construction and development costs and the market for the project upon completion, it isdifficult to evaluate accurately the total loan funds required to complete a project, the related loan-to-value ratios and the likelihood of ultimate success of the project. These loans also involvemany of the same risks discussed above regarding multi-family and commercial real estate loans and tend to be more sensitive to general economic conditions than many other types of loans. Inaddition, payment of interest from loan proceeds can make it difficult to monitor the progress of a project.

         ***Consumer and Other Lending***. Consumer loans generally have shorter terms to maturity, which reduces our exposure tochanges in interest rates, and carry higher rates of interest than one- to four-family residential mortgage loans. In addition, management believes that offering consumer loan products helps toexpand and create stronger ties to our customer base by increasing the number of customer relationships and providing cross-marketing opportunities. At December 31, 2004, our consumer loan portfoliototaled $195.5 million, or 26.8% of our gross loan portfolio. We offer a variety of secured consumer loans, including home equity and lines of credit, home improvement, auto, boat and recreationalvehicle loans, and loans secured by savings deposits. We also offer a limited amount of unsecured loans. We originate our consumer loans both in our market area and throughout Indiana.

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         At December 31, 2004, our home equity loans, including lines of credit and home improvement loans, totaled $52.8 million, or 7.2% of our grossloan portfolio. These loans may be originated in amounts, together with the amount of the existing first mortgage, of up to 100% of the value of the property securing the loan. The term to maturityon our home equity and home improvement loans may be up to 15 years. Home equity lines of credit have a maximum term to maturity of 20 years and require a minimum monthly payment based on theoutstanding loan balance per month, which amount may be reborrowed at any time. Other consumer loan terms vary according to the type of collateral, length of contract and creditworthiness of theborrower.

         We directly and indirectly originate auto, boat and recreational vehicle loans. We generally buy indirect auto loans on a rate basis, payingthe dealer a cash payment for loans with an interest rate in excess of the rate we require. This premium is amortized over the remaining life of the loan. Any prepayments or delinquencies are chargedto future amounts owed to that dealer, with no dealer reserve or other guarantee of payment if the dealer stops doing business with us.

         We underwrite indirect auto loans using the Fair-Isaacs credit scoring system. We also directly originate auto loans through bank personnel.These loans are underwritten more traditionally, with a review of the borrower's employment and credit history and an assessment of the borrower's ability to repay the loan.

         At December 31, 2004, auto loans totaled $39.5 million, or 5.4% of our gross loan portfolio. Auto loans may be written for upto six years and usually have fixed rates of interest. Loan-to-value ratios are up to 100% of the sale price for new autos and 110% of value on used cars, based on valuation from official used carguides.

         Our boat and recreational vehicle loans are generally originated on an indirect basis. Until November 2004, we utilized an independent companyto market our loan products and help service and collect our boat and RV loans, keeping down our marketing, collection and related personnel costs. For these services, we paid a fee based on apercentage of the loan amounts originated through this company as well as monthly service fees. We currently market and service these loans in-house. We pay dealers a premium for each indirect loanbased on the interest rate charged on each loan. We amortize this premium, which is usually significantly smaller than the premium we pay dealers for our indirect auto loans, over the estimated lifeof each loan.

         We underwrite indirect boat and RV loans using the Fair-Isaacs credit scoring system and, as with our indirect auto loans, tend to accept onlythe more qualified buyers based on our scoring.

         Loans for boats and recreational vehicles totaled $97.0 million at December 31, 2004, or 13.3% of our gross loan portfolio. This has been thefastest growing portion of our consumer loan portfolio over the past five years. We will finance up to 100% of the purchase price for a recreational vehicle and 95% for a boat. Values are based onthe applicable official used vehicle guides. The term to maturity for these types of loans is up to 10

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         At December 31, 2004, manufactured housing loans totaled $2.9 million, or .4% of our gross loan portfolio. Due to increased competition, we nolonger offer manufactured housing loans, and have allowed this portion of the loan portfolio to shrink over the past six years.

         Consumer loans may entail greater risk than one- to four-family residential mortgage loans, especially consumer loans secured by rapidlydepreciable assets, such as automobiles, boats and recreational vehicles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of theoutstanding loan balance. As a result, consumer loan collections are dependent on the borrower's continuing financial stability and, thus, are more likely to be adversely affected by job loss,divorce, illness or personal bankruptcy.

         ***Commercial Business Lending***. At December 31, 2004, commercial business loans totaled $53.6 million, or 7.4% of ourgross loan portfolio. Most of our commercial business loans have been extended to finance local businesses and include short-term loans to finance machinery and equipment purchases, inventory andaccounts receivable. Commercial business loans also involve the extension of revolving credit for a combination of equipment acquisitions and working capital needs and agricultural purposes such asseed, farm equipment and livestock.

         The terms of loans extended on the security of machinery and equipment are based on the projected useful life of the machinery and equipment,generally not to exceed seven years. Lines of credit generally are available to borrowers for up to 13 months, and may be renewed by us after an annual review of current financial information.

         We issue a few financial-based standby letters of credit which are offered at competitive rates and terms and are generally on a securedbasis. We continue to expand our volume of commercial business loans.

         Our commercial business lending policy includes credit file documentation and analysis of the borrower's background, capacity to repay theloan, the adequacy of the borrower's capital and collateral as well as an evaluation of other conditions affecting the borrower. Analysis of the borrower's past, present and future cash flows also isan important aspect of our credit analysis. We generally obtain personal guarantees on our commercial business loans. Nonetheless, these loans are believed to carry higher credit risk thantraditional single family loans.

         Unlike residential mortgage loans, commercial business loans are typically made on the basis of the borrower's ability to make repayment fromthe cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may substantially depend on the success of the business itself (which,in turn, often depends in part upon general economic conditions). Our commercial business loans are usually secured by business assets. However, the collateral securing the loans may depreciate overtime, may be difficult to appraise and may fluctuate in value based on the success of the business.

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**Loan Originations, Purchases, Sales and Repayments**

         We originate loans through referrals from real estate brokers and builders, our marketing efforts, and our existing and walk-in customers. Wealso originate many of our consumer loans through relationships with dealerships. While we originate both adjustable-rate and fixed-rate loans, our ability to originate loans depends upon customerdemand for loans in our market areas. Demand is affected by local competition and the interest rate environment. During the last several years, due to low market rates of interest, our dollar volumeof fixed-rate, one- to four-family loans has exceeded the dollar volume of the same type of adjustable-rate loans. As part of our interest rate risk management efforts, we have from time to time soldour fixed rate, one- to four-family residential loans. We have also, on a very limited basis, purchased one- to four-family residential and commercial real estate loans. Furthermore, during the pastfew years, we, like many other financial institutions, have experienced significant prepayments on loans due to the low interest rate environment prevailing in the United States.

         In periods of economic uncertainty, the ability of financial institutions, including us, to originate or purchase large dollar volumes ofloans may be substantially reduced or restricted, with a resultant decrease in interest income.

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         The following table shows our loan origination, purchase, sale and repayment activities for the years indicated.

**Year Ended December 31,200420032002(In Thousands)Originations by type: Adjustable rate:  Real estate - one- to four-family$44,837 $36,103 $  26,475                      - multi-family--- 89 224                       - commercial7,983 16,183 12,883                       - construction or development11,507 7,765 8,047   Non-real estate - consumer26 4 3                               - commercialbusiness9,389 9,646 9,104          Total adjustable-rate73,742 69,790 56,736  Fixed rate:  Real estate - one- to four-family72,566 187,913 161,665                       - multi-family--- --- ---                       - commercial496 4,758 356                       - construction or development17,658 20,207 19,505   Non-real estate - consumer52,165 67,289 58,179                               - commercialbusiness3,855 5,541 5,169          Total fixed-rate146,740 285,708 244,874          Total loans originated220,482 355,498 301,610 Purchases:  Real estate - one- to four-family--- 106 ---                       - multi-family--- --- ---                       - commercial--- --- ---                       - construction or development--- --- ---   Non-real estate - consumer--- --- ---                               - commercialbusiness--- --- ---          Total loans purchased--- 106 --- Sales and Repayments:Sales:  Real estate - one- to four-family40,821 52,038 62,638                       - multi-family--- --- --                       - commercial--- --- ---                       - construction or development--- --- ---  Non-real estate - consumer--- --- ---                              -commercial business--- --- ---          Total loans sold40,821 52,038 62,638 Principal repayments168,624 244,234 236,852          Total reductions209,445 296,272 299,490 Increase (decrease) in other items, net41 (1,382)(1,577)         Net increase$  11,078 $  57,950 $       543 **

**Asset Quality**

         When a borrower fails to make a payment on a mortgage loan on or before the default date, a late charge notice is mailed 16 days after the duedate. When the loan is 31 days past due (16 days for an ARM), we mail a delinquency notice to the borrower. All delinquent accounts are reviewed by a collector, who attempts

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         For consumer loans, a similar process is followed, with the initial written contact being made once the loan is 30 days past due.

         ***Delinquent Loans.*** The following table sets forth, as of December 31, 2004, our loans delinquent 60 - 89 days bytype, number, amount and percentage of type.

**Loans Delinquent For:60-89 DaysNumberAmountPercentof LoanCategory(Dollars in Thousands)Real Estate:  One- to four-family41$1,600.415%  Multi-family---------     Commercial3312.458     Construction and   development---------   Consumer74802.410   Commercial business227.050        Total120$2,741.376%**
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         ***Non-performing Assets.*** The table below sets forth the amounts and categories of non-performing assets in our loanportfolio at the dates indicated. Loans are placed on non-accrual status when the loan becomes more than 90 days delinquent or when collection of interest becomes doubtful. Foreclosed assets ownedinclude assets acquired in settlement of loans.

|                                                              | December 31,             |
|--------------------------------------------------------------|--------------------------|
|                                                              | 2004                     | 2003 | 2002 | 2001 | 2000 |
|                                                              | (Dollars in Thousands)   |
| Non-accruing loans:                                          |                          |  |  |  |  |
|   One- to four-family                              | $1,326    | $1,346    | $2,136    | $2,886    | $   710    |
|   Multi-family                                     | ---       | ---    | ---    | ---    | ---    |
|   Commercial real estate                           | 370       | 232    | 2,234    | 2,862    | 1,548    |
|   Construction and development                     | ---       | ---    | ---    | ---    | ---    |
|   Consumer                                         | 498       | 653    | 544    | 819    | 761    |
|   Commercial business                              | 1,791     | 1,039    | 118    | ---    | ---    |
|      Total                          | 3,985     | 3,270    | 5,032    | 6,567    | 3,019    |
|                                                              |                          |  |  |  |  |
| Accruing loans delinquent 90 days or    more: |                          |  |  |  |  |
|   One- to four-family                              | ---       | ---    | ---    | ---    | 232    |
|   Multi-family                                     | ---       | ---    | ---    | ---    | ---    |
|   Commercial real estate                           | ---       | ---    | ---    | ---    | 137    |
|   Construction and development                     | ---       | ---    | ---    | 46    | ---    |
|   Consumer                                         | 119       | 10    | 64    | ---    | 31    |
|   Commercial business                              | ---       | ---    | ---    | ---    | ---    |
|      Total                          | 119       | 10    | 64    | 46    | 400    |
|      Total nonperfoming loans       | 4,104     | 3,280    | 5,096    | 6,613    | 3,419    |
|                                                              |                          |  |  |  |  |
| Restructured loans                                           | 120       | ---    | ---    | ---    | ---    |
|                                                              |                          |  |  |  |  |
| Foreclosed assets:                                           |                          |  |  |  |  |
|   One- to four-family                              | 285       | 557    | 1,184    | 562    | 80    |
|   Multi-family                                     | ---       | ---    | ---    | ---    | ---    |
|   Commercial real estate                           | 55        | 40    | 289    | 483    | 764    |
|   Construction and development                     | ---       | ---    | ---    | ---    | ---    |
|   Consumer                                         | 894       | 824    | 335    | 383    | 90    |
|   Commercial business                              | ---       | ---    | ---    | ---    | ---    |
|      Total                          | 1,234     | 1,421    | 1,808    | 1,428    | 934    |
|                                                              |                          |  |  |  |  |
| Total non-performing assets                                  | $5,458    | $4,676    | $6,904    | $8,041    | $4,353    |
| Total as a percentage of total assets                        | .65%                     | .57% | 0.89% | 1.05% | 0.56% |

         For the year ended December 31, 2004, gross interest income which would have been recorded had the non-accruing loans been current inaccordance with their original terms amounted to $416,000. The amount included in interest income on these loans for the year ended December 31, 2004, was $134,000.

             At December 31, 2004, foreclosed commercial real estate consisted of two commercial buildings in Kosciusko County,which are currently being offered for sale. In addition, six residential properties with a book value of $285,000 remain as foreclosed assets at December 31, 2004. These properties are being offeredfor sale. Non-accruing one- to four-family loans remained unchanged at $1.3 million at December 31, 2003 and 2004. Non-accruing commercial real estate loans increased from $232,000 at December 31,2003, to

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         ***Other Loans of Concern.*** In addition to the non-performing assets set forth in the table above, as of December 31,2004, there was an aggregate of $3.9 million in loans with respect to which known information about the possible credit problems of the borrowers have caused management to have doubts as to theabilities of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the non-performing asset categories. These loans have beenconsidered in management's determination of the adequacy of our allowance for loan losses.

             Included in the $3.9 million above are six commercial business loans totaling $1.3 million, three commercial realestate loans totaling $240,000 and 34 residential mortgage loans totaling $2.4 million. The majority of these loans were current as of December 31, 2004.

         ***Classified Assets.*** Federal regulations provide for the classification of loans and other assets, such as debt andequity securities considered by the Office of Thrift Supervision to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is considered "substandard" if it is inadequately protectedby the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the insuredinstitution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the addedcharacteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assetsclassified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

         When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan lossesin an amount deemed prudent by management and approved by the board of directors. General allowances represent loss allowances which have been established to recognize the inherent risk associatedwith lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as "loss," it is requiredeither to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. An institution's determination as to the classification ofits assets and the amount of its valuation allowances is subject to review by the Office of Thrift Supervision and the FDIC, which may order the establishment of additional general or specific lossallowances.

         In connection with the filing of Mutual Federal's periodic reports with the Office of Thrift Supervision and in accordance with ourclassification of assets policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basisof

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             ***Provision for Loan Losses***. We recorded a provision for loan losses during the year endedDecember 31, 2004 of $1.6 million, compared to $1.5 million for the year ended December 31, 2003 and $1.7 million for the year ended December 31, 2002. The provision for loan losses is charged toincome to bring our allowance for loan losses to a level deemed appropriate by management based on the factors discussed below under "-- Allowance for Loan Losses." The provision for loan lossesduring the year ended December 31, 2004 was based on management's review of such factors that indicated that the allowance for loan losses was adequate to cover losses inherent in the loan portfolioas of December 31, 2004.

         ***Allowance for Loan Losses***. We maintain an allowance for loan losses to absorb losses inherent in the loan portfolio.The allowance is based on ongoing, quarterly assessments of the estimated losses inherent in the loan portfolio. Our methodology for assessing the appropriateness of the allowance consists of severalkey elements, which include the formula allowance, specific allowances for identified problem loans and portfolio segments and the unallocated allowance. In addition, the allowance incorporates theresults of measuring impaired loans as provided in SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - IncomeRecognition and Disclosures." These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans.

         The formula allowance is calculated by applying loss factors to outstanding loans based on the internal risk evaluation of such loans or poolsof loans. Changes in risk evaluations of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience as well as onsignificant factors that, in management's judgment, affect the collectibility of the portfolio as of the evaluation date.

         The appropriateness of the allowance is reviewed by management based upon its evaluation of then-existing economic and business conditionsaffecting our key lending areas and other conditions, such as credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loanvolumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and theimpact that such conditions were believed to have had on the collectibility of the loan. Senior management reviews these conditions quarterly in discussions with our senior credit officers. To theextent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management's estimate of the effect of such conditionmay be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specifically identifiable

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         The allowance for loan losses is based on estimates of losses inherent in the loan portfolio. Actual losses can vary significantly from theestimated amounts. Our methodology as described permits adjustments to any loss factor used in the computation of the formula allowance in the event that, in management's judgment, significantfactors which affect the collectibility of the portfolio as of the evaluation date are not reflected in the loss factors. By assessing the estimated losses inherent in the loan portfolio on aquarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available. Due to the loss of numerous manufacturing jobs in thecommunities we serve during recent years, including 2004, and the increase in higher risk loans, like consumer and commercial loans, as a percentage of total loans, management has concluded that ourallowance for loan losses should be greater than historical loss experience would otherwise indicate.

         At December 31, 2004, our allowance for loan losses was $6.9 million, or .95% of the total loan portfolio, and approximately 167.32% of totalnon-performing loans. Assessing the adequacy of the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flowsexpected to be received on impaired loans, that are susceptible to significant change. In the opinion of management, the allowance, when taken as a whole, is adequate to absorb reasonable estimatedloan losses inherent in our loan portfolio.

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         The following table sets forth an analysis of our allowance for loan losses.

|                                                                                                     | Year Ended December 31,  |
|-----------------------------------------------------------------------------------------------------|--------------------------|
|                                                                                                     | 2004                     | 2003 | 2002 | 2001 | 2000 |
|                                                                                                     | (Dollars in Thousands)   |
| Balance at beginning of period                                                                      | $6,779    | $6,286    | $5,449    | $6,472    | $3,652    |
| Charge-offs:                                                                                        |
|   One- to four-family                                                                     | 249       | 210    | 241    | 28    | 504    |
|   Multi-family                                                                            | ---       | ---    | ---    | ---    | 75    |
|   Commercial real estate                                                                  | 34        | 173    | 520    | 1,352    | 50    |
|   Construction and development                                                            | ---       | ---    | ---    | ---    | ---    |
|   Consumer                                                                                | 1,093     | 948    | 786    | 839    | 453    |
|   Commercial business                                                                     | 616       | 30    | 268    | 147    | 12    |
|                                                                                                     | 1,992     | 1,361    | 1,815    | 2,366    | 1,094    |
|                                                                                                     |                          |  |  |  |  |
| Recoveries:                                                                                         |                          |  |  |  |  |
|   One- to four-family                                                                     | 21        | 27    | 513    | 7    | 23    |
|   Multi-family                                                                            | ---       | ---    | ---    | ---    | ---    |
|   Commercial real estate                                                                  | 326       | 108    | 348    | ---    | ---    |
|   Construction and development                                                            | ---       | ---    | ---    | ---    | ---    |
|   Consumer                                                                                | 176       | 159    | 64    | 50    | 34    |
|   Commercial business                                                                     | ---       | 110    | 14    | 4    | ---    |
|                                                                                                     | 523       | 404    | 939    | 61    | 57    |
|                                                                                                     |                          |  |  |  |  |
| Net charge-offs                                                                                     | 1,469     | 957    | 876    | 2,305    | 1,037    |
| Amount acquired with Marion purchase                                                                | ---       | ---    | ---    | ---    | 3,172    |
| Provisions charged to operations                                                                    | 1,557     | 1,450    | 1,713    | 1,282    | 685    |
| Balance at end of period                                                                            | $6,867    | $ 6,779    | $6,286    | $5,449    | $6,472    |
|                                                                                                     |                          |  |  |  |  |
| Ratio of net charge-offs during the period to average loans outstanding during the period | 0.21%                    | 0.14% | 0.13% | 0.35% | 0.22% |
|                                                                                                     |                          |  |  |  |  |
| Allowance as a percentage of non-performing loans                                              | 167.32%                  | 208.26% | 123.35% | 82.4% | 189.13% |
|                                                                                                     |                          |  |  |  |  |
| Allowance as a percentage of total loans (end of period)                                       | 0.95%                    | 0.95% | 0.97% | 0.85% | 1.01% |

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         The distribution of our allowance for loan losses at the dates indicated is summarized as follows:

|                                     | December 31,                |
|-------------------------------------|-----------------------------|
|                                     | 2004                        | 2003 | 2002 |
|                                     | Amount ofLoan LossAllowance | LoanAmountsbyCategory | Percentof Loansin EachCategoryto TotalLoans | Amount ofLoan LossAllowance | LoanAmountsbyCategory | Percentof Loansin EachCategoryto TotalLoans | Amount ofLoan LossAllowance | LoanAmountsbyCategory | Percentof Loansin EachCategoryto TotalLoans |
|                                     | (Dollars in Thousands)      |
| One- to four-family                 | $1,013                      | $385,678(1) | 52.96% | $1,149 | $393,450(2) | 54.86% | $1,045 | $374,407(3) | 56.80% |
| Multi-family                        | 62                          | 4,657    | .64    | 72 | 5,353    | .75    | 137 | 8,211    | 1.25    |
| Commercial real estate         | 1,479                       | 68,067    | 9.35    | 990 | 65,430    | 9.12    | 1,087 | 54,252    | 8.23    |
| Construction ordevelopment          | 104                         | 20,745    | 2.85    | 89 | 17,860    | 2.49    | 74 | 14,853    | 2.25    |
| Consumer                            | 3,155                       | 195,457    | 26.84    | 3,585 | 190,691    | 26.59    | 3,227 | 172,814    | 26.21    |
| Commercial business                 | 1,054                       | 53,620    | 7.36    | 894 | 44,362    | 6.19    | 656 | 34,660    | 5.26    |
| Unallocated                         | ---                         | ---    | ---    | --- | ---    | ---    | 60 | ---    | ---    |
|      Total | $6,867                      | $728,224    | 100.00% | $6,779 | $717,146    | 100.00% | $6,286 | $659,197    | 100.00% |

 

|                                     | December 31,                |
|-------------------------------------|-----------------------------|
|                                     | 2001                        | 2000 |
|                                     | Amount ofLoan LossAllowance | LoanAmountsbyCategory | Percentof Loansin EachCategoryto TotalLoans | Amount ofLoan LossAllowance | LoanAmountsbyCategory | Percentof Loansin EachCategoryto TotalLoans |
|                                     | (Dollars in Thousands)      |
| One- to four-family                 | $   895      | $388,331 | 58.96% | $1,106 | $392,832 | 60.19% |
| Multi-family                        | 277                         | 10,059 | 1.53    | 610 | 9,787 | 1.50    |
| Commercial real estate              | 1,223                       | 51,503 | 7.82    | 1,550 | 53,197 | 8.15    |
| Construction or development         | 83                          | 16,438 | 2.49    | 68 | 13,591 | 2.08    |
| Consumer                            | 2,588                       | 162,231 | 24.63    | 2,505 | 156,938 | 24.04    |
| Commercial business                 | 383                         | 30,092 | 4.57    | 455 | 26,375 | 4.04    |
| Unallocated                         | ---                         | --- | ---    | 178 | --- | ---    |
|      Total | $5,449                      | $658,654 | 100.00% | $6,472 | $652,720 | 100.00% |

___________________(1) Includes loans held for sale of $2.9 million.(2) Includes loans held for sale of $2.0 million.(3) Includes loans held for sale of $7.9 million.

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**Investment Activities**

         Mutual Federal may invest in various types of liquid assets, including United States Treasury obligations, securities of various federalagencies, including callable agency securities, certain certificates of deposit of insured banks and savings institutions, certain bankers' acceptances, repurchase agreements and federal funds.Subject to various restrictions, it also may invest in investment grade commercial paper and corporate debt securities and mutual funds the assets of which conform to the investments that a federallychartered savings institution is otherwise authorized to make directly. See "How We Are Regulated - Mutual Federal" and "- Qualified Thrift Lender Test" for a discussion of additional restrictions onour investment activities.

         The Chief Financial Officer has the basic responsibility for the management of our investment portfolio, subject to the direction and guidanceof the Asset and Liability Management Committee. The Chief Financial Officer considers various factors when making decisions, including the marketability, maturity and tax consequences of theproposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated slope of the yield curve, the level of interest rates,the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.

         The general objectives of our investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings whenloan demand is low and to maximize earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk. See "Management's Discussion andAnalysis of Financial Condition and Results of Operations - Asset and Liability Management and Market Risk" in Item 7 of this Form 10-K.

         Our investment securities currently consist of U.S. Agency securities, mortgage-backed securities, collateralized mortgage obligations,marketable equity securities (which consist of shares in mutual funds that invest in government obligations, corporate obligations, mortgage-backed securities and asset-backed securities) andcorporate obligations. See Note 3 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. At December 31, 2004, our investment securities portfolio did not containany tax-exempt securities. Our mortgage-backed securities portfolio currently consists of securities issued under government-sponsored agency programs.

         While mortgage-backed securities carry a reduced credit risk as compared to whole loans, these securities remain subject to the risk that afluctuating interest rate environment, along with other factors like the geographic distribution of the underlying mortgage loans, may alter the prepayment rate of the mortgage loans and affect boththe prepayment speed and value of the securities.

         In the past, we also have maintained a trading portfolio of U.S. Government securities. We are permitted by the board of directors to have aportfolio of up to $5.0 million, and to trade up to $2.0 million in these securities at any one time. At December 31, 2004, however, we did not have a trading portfolio. See Note 3 of the Notes toConsolidated Financial Statements contained in Item 8 of this Form 10-K.

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         Mutual Federal has investments in six separate Indiana limited partnerships that were organized to construct, own and operate three multi-unitapartment complexes in the Indianapolis area, one in Findley, Ohio, one in Goshen, Indiana, and one in Niles, Michigan (the Pedcor Projects). The general partner in each of these Pedcor Projects isPedcor Investments. The three Indianapolis area Pedcor Projects and the Pedcor project located in Niles, Michigan, are operated as multi-family, low and moderate-income housing projects, and havebeen performing as planned for several years. The Findley, Ohio Pedcor Project, which also is operated as a multi-family, low and moderate-income housing project, was completed in 2000. At theinception of the Findley, Ohio Pedcor Project in February 1998, we invested $2.1 million and committed to invest an additional $1.9 million. As of December 31, 2004, $1.5 million of this commitmentremained payable over the next five years. At the inception of the Niles, Michigan Project in August 1997, we committed to invest $3.6 million over ten years. As of December 31, 2004, $938,000remained payable over the next three years. At the inception of the Goshen, Indiana Pedcor Project, in March 2003, we made the only required investment of $500,000.

         A low and moderate-income housing project qualifies for certain federal income tax credits if (1) it is a residential rental property, (2) theunits are used on a non-transient basis, and (3) at least 20% of the units in the project are occupied by tenants whose incomes are 50% or less of the area median gross income, adjusted for familysize, or alternatively, at least 40% of the units in the project are occupied by tenants whose incomes are 60% or less of the area median gross income. Qualified low-income housing projects generallymust comply with these and other rules for 15 years, beginning with the first year the project qualified for the tax credit, or some or all of the tax credit together with interest may be recaptured.The tax credit is subject to the limitation as the use of general business credit, but no basis reduction is required for any portion of the tax credit claimed. As of December 31, 2004, at least 76%of the units in the Pedcor Projects were occupied, and all of the tenants met the income test required for the tax credits.

         We received tax credits totaling $800,000 for the year ended December 31, 2004, $753,000 for the year ended December 31, 2003, and $843,000for the year ended December 31, 2002 from the Pedcor Projects. The Pedcor Projects have incurred operating losses in the early years of their operations primarily due to accelerated depreciation ofassets. We have accounted for our investment in the Pedcor Projects on the equity method. Accordingly, we have recorded our share of these losses as reductions to Mutual Federal's investment in thePedcor Projects.

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         The following summarizes Mutual Federal's equity in the Pedcor Projects' losses and tax credits recognized in our consolidated financialstatements.

|                                                                 | For the Year Ended December 31, |
|-----------------------------------------------------------------|---------------------------------|
|                                                                 | 2004                            | 2003 | 2002 |
|                                                                 | (In Thousands)                  |
|                                                                 |                                 |  |  |
| Investments in Pedcor low  income housing projects    | $5,025                          | $5,088  | $5,616  |
|                                                            |                                 |  |  |
| Equity in losses, net of income  tax effect           | $   147          | $   (318) | $   (410) |
| Tax credit                                                      | 800                        | 753  | 843  |
| Increase in after-tax income  from Pedcor Investments |    947           | $    435  | $    433  |

         See Note 6 of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for additional information regarding ourlimited partnership investments.

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         The following table sets forth the composition of our investment and mortgage-related securities portfolio and other investments at the datesindicated. As of December 31, 2004, our investment securities portfolio did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding thoseissued by the United States Government or its agencies.

|                                                                         | December 31,                             |
|-------------------------------------------------------------------------|------------------------------------------|
|                                                                         | 2004                                     | 2003 | 2002 |
|                                                                         | AmortizedCost                            | FairValue | AmortizedCost | FairValue | AmortizedCost | FairValue |
|                                                                         | (In Thousands)                           |
| Investment securities held-to-maturity                                  | $      --- | $      --- | $      --- | $      --- | $      --- | $      --- |
|                                                                    |                                          |  |  |  |  |  |
| Investment securities available-for-sale:                               |                                          |  |  |  |  |  |
|   Mutual funds                                                | 14,999                                   | 14,804 | 7,645 | 7,559 | 15,456 | 15,420 |
|   Federal agency obligations                                  | 2,180                                    | 2,155 | 3,258 | 3,300 | 2,238 | 2,322 |
|   Mortgage-backed securities                                  | 2,661                                    | 2,725 | 3,900 | 4,044 | 6,615 | 6,924 |
|   Collateralized mortgage obligations                         | 8,614                                    | 8,599 | 8,374 | 8,457 | 9,406 | 9,515 |
|   Corporate obligations                                       | 11,103                                   | 11,126 | 9,756 | 9,962 | 7,723 | 8,031 |
|   Municipal obligations                                       | ---                                      | --- | 150 | 150 | 150 | 150 |
|      Total investment securities held for sale | 39,557                                   | 39,409 | 33,083 | 33,472 | 41,588 | 42,362 |
|                                                                    |                                          |  |  |  |  |  |
| Trading account securities                                              | ---                                      | --- | --- | --- | --- | --- |
|                                                                    |                                          |  |  |  |  |  |
| Total investment securities                                             | 39,557                                   | 39,409 | 33,083 | 33,472 | 41,588 | 42,362 |
| Investment in limited partnerships                                      | 5,025                                    | N/A  | 5,088 | N/A  | 5,616 | N/A  |
| Investment in insurance company                                         | 590                                      | N/A  | 590 | N/A  | 590 | N/A  |
| Federal Home Loan Bank stock                                            | 7,958                                    | N/A  | 7,264 | N/A  | 6,993 | N/A  |
|                                                                    |                                          |  |  |  |  |  |
| Total investments                                                       | $53,130                                  |  | $46,025 |  | $54,787 |  |

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         The following table indicates, as of December 31, 2004, the composition and maturities of our investment securities and mortgage-backedsecurities portfolio, excluding Federal Home Loan Bank stock and our trading securities.

|                             | Due in                 |
|-----------------------------|------------------------|
|                             | Less Than1 Year        | 1 to 5Years | 5 to 10Years | Over10 Years | TotalInvestment Securities |
|                             | AmortizedCost          | AmortizedCost | AmortizedCost | AmortizedCost | AmortizedCost | FairValue |
|                             | (Dollars in Thousands) |
|                        |                        |  |  |  |  |  |
| Corporate obligations       | $  3,561     | $  3,531 | $     --- | $  4,011 | $11,103 | $11,126 |
| Federal agency obligations  | ---                    | 2,002 | --- | 178 | 2,180 | 2,155 |
| Mutual funds                | 14,999                 | --- | --- | --- | 14,999 | 14,804 |
| Mortgage-backed securities: |                        |  |  |  |  |  |
|   Freddie Mac     | ---                    | --- | 866 | 3,275 | 4,141 | 4,130 |
|   Fannie Mae      | ---                    | 11 | 1,855 | 1,837 | 3,703 | 3,754 |
|   Ginnie Mae      | ---                    | --- | --- | 514 | 514 | 515 |
|   Other           | ---                    | --- | 2,917 | --- | 2,917 | 2,925 |
|                             | $18,560                | $  5,544 | $  5,638 | $  9,815 | $39,557 | $39,409 |
|                             |                        |  |  |  |  |  |
| Weighted average yield      | 3.05%                  | 3.93% | 5.17% | 4.84% | 3.92% |  |

**Sources of Funds**

         ***General.*** Our sources of funds are deposits, borrowings, payment of principal and interest on loans, interest earnedon or maturation of other investment securities and funds provided from operations.

         ***Deposits*.** We offer deposit accounts to consumers and businesses having a wide range of interest rates and terms. Ourdeposits consist of savings deposit accounts, NOW and demand accounts and certificates of deposit. We solicit deposits in our market areas and have not accepted brokered deposits. We primarily relyon competitive pricing policies, marketing and customer service to attract and retain these deposits.

         The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, andcompetition. The variety of our deposit accounts has allowed us to be competitive in obtaining funds and to respond to changes in consumer demand. We have become more susceptible to short-termfluctuations in deposit flows, as customers have become more interest rate conscious. We try to manage the pricing of our deposits in keeping with our asset/liability management, liquidity andprofitability objectives, subject to competitive factors. Based on our experience, we believe that our deposits are relatively stable sources of funds. Our ability to attract and maintain thesedeposits, however, and the rates paid on them, has been and will continue to be affected significantly by market conditions.

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         The following table sets forth the dollar amount of savings deposits in the various types of deposit programs we offered at the datesindicated.

|                                               | December 31,           |
|-----------------------------------------------|------------------------|
|                                               | 2004                   | 2003 | 2002 |
|                                               | Amount                 | Percentof Total | Amount | Percentof Total | Amount | Percentof Total |
|                                               | (Dollars in Thousands) |
| Transactions and Savings Deposits:            |                        |  |  |  |  |  |
|                                          |                        |  |  |  |  |  |
| Noninterest bearing accounts                  | $39,999                | 6.66% | $32,137 | 5.55% | $  30,058 | 5.46% |
| Passbook accounts                             | 61,629                 | 10.26    | 57,785 | 9.97    | 54,677 | 9.93    |
| Interest-bearing NOW and                      |                        |  |  |  |  |  |
|      demand accounts | 58,440                 | 9.74    | 59,810 | 10.32    | 61,353 | 11.15    |
| Money market accounts                         | 54,704                 | 9.11    | 48,750 | 8.41    | 45,330 | 8.24    |
|                                          |                        |  |  |  |  |  |
| Total non-certificates                        | 214,772                | 35.77    | 198,482 | 34.26    | 191,418 | 34.78    |
|                                          |                        |  |  |  |  |  |
| Certificates:                                 |                        |  |  |  |  |  |
|                                          |                        |  |  |  |  |  |
| 0.00 - 1.99%                                  | 93,977                 | 15.65    | 128,970 | 22.26    | 36,409 | 6.62    |
| 2.00 - 3.99%                                  | 192,436                | 32.05    | 145,134 | 25.05    | 175,128 | 31.82    |
| 4.00 - 5.99%                                  | 53,594                 | 8.93    | 58,016 | 10.01    | 96,278 | 17.49    |
| 6.00 - 7.99%                                  | 45,628                 | 7.60    | 48,760 | 8.42    | 50,529 | 9.18    |
| 8.00 - 9.99%                                  | ---                    | ---    | --- | ---    | 602 | .11    |
| 10.00% and over                               | ---                    | ---    | --- | ---    | --- | ---    |
|                                          |                        |  |  |  |  |  |
| Total certificates                            | 385,635                | 64.23    | 380,880 | 65.74    | 358,946 | 65.22    |
| Total deposits                                | $600,407               | 100.00% | $579,362 | 100.00% | $550,364 | 100.00% |

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         The following table shows rate and maturity information for our certificates of deposit as of December 31, 2004.

|                                                      | 1.00-1.99%             | 2.00-3.99%          | 4.00-5.99%         | 6.00-7.99% | Total    | Percentof Total         |
|------------------------------------------------------|------------------------|---------------------|--------------------|------------|----------|-------------------------|
|                                                      | (Dollars in Thousands) |
| Certificate accounts maturing in quarterending: |                        |                     |                    |            |          |                         |
| March 31, 2005                                       | $52,080                | $  46,116 | $  4,415 | $19,573    | $122,184 | 31.68%                  |
| June 30, 2005                                        | 17,912                 | 19,011              | 9,669              | 13,875     | 60,467   | 15.68    |
| September 30, 2005                                   | 9,698                  | 9,353               | 4,003              | 6,075      | 29,129   | 7.55     |
| December 31, 2005                                    | 7,786                  | 13,651              | 514                | 5,310      | 27,261   | 7.07     |
| March 31, 2006                                       | 1,156                  | 24,644              | 1,596              | 243        | 27,639   | 7.17     |
| June 30, 2006                                        | 1,423                  | 18,304              | 2,187              | ---        | 21,914   | 5.68     |
| September 30, 2006                                   | 1,881                  | 6,779               | 1,905              | ---        | 10,565   | 2.74     |
| December 31, 2006                                    | 1,415                  | 5,153               | 2,028              | 510        | 9,106    | 2.36     |
| March 31, 2007                                       | 208                    | 25,257              | 3,099              | ---        | 28,564   | 7.41     |
| June 30, 2007                                        | 142                    | 4,772               | 8,013              | ---        | 12,927   | 3.35     |
| September 30, 2007                                   | 145                    | 79                  | 8,997              | ---        | 9,221    | 2.39     |
| December 31, 2007                                    | 131                    | 2,229               | 1,871              | ---        | 4,231    | 1.10     |
| Thereafter                                           | ---                    | 17,088              | 5,297              | 42         | 22,427   | 5.82     |
|                                                      |                        |                     |                    |            |          |                         |
|    Total                              | $93,977                | $192,436            | $53,594            | $45,628    | $385,635 | 100.00%                 |
|                                                      |                        |                     |                    |            |          |                         |
|    Percent of total                   | 24.37%                 | 49.90%              | 13.90%             | 11.83%     | 100.00%  |                         |

         The following table indicates, as of December 31, 2004, the amount of our certificates of deposit and other deposits by time remaining untilmaturity.

**Maturity3 Monthsor LessOver3 to 6MonthsOver6 to 12MonthsOver12 monthsTotal(In Thousands) Certificates of deposit less than $100,000$  66,414$46,603$43,798$106,842$263,657 Certificates of deposit of $100,000 or more18,16312,05012,57236,36179,146 Public funds (1)37,6071,814203,39142,832Total certificates of deposit$122,184$60,467$56,390$146,594$385,635**

_______________(1) Deposits from governmental and other public entities.

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         ***Borrowings*.** Although deposits are our primary source of funds, we utilize borrowings when they are a less costlysource of funds and can be invested at a positive interest rate spread, when we desire additional capacity to fund loan demand or when they meet our asset/liability management goals. Our borrowingshistorically have consisted of advances from the Federal Home Loan Bank of Indianapolis and securities sold under agreement to repurchase. See Note 8 of the Notes to Consolidated Financial Statementscontained in Item 8 of this Form 10-K.

         We may obtain advances from the Federal Home Loan Bank of Indianapolis upon the security of certain of our mortgage loans and mortgage-backedsecurities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features. At December 31, 2004, we had$139.4 million in Federal Home Loan Bank advances outstanding. Based on current collateral levels we could borrow an additional $129.7 million from the Federal Home Loan Bank at prevailing interestrates. We believe that we will continue to have sufficient funds, through deposits and borrowings, to meet our current commitments. See "Management's Discussion and Analysis of Financial Conditionand Results of Operations - Liquidity and Commitments" contained in Item 7 of this Form 10-K.

         The following table sets forth, for the years indicated, the maximum month-end balance and average balance of Federal Home Loan Bank advances,securities sold under agreement to repurchase and other borrowings.

|                              | Year Ended December 31, |
|------------------------------|-------------------------|
|                              | 2004                    | 2003 | 2002 |
|                              | (In Thousands)          |
| Maximum Balance:             |                         |  |  |
|   FHLB advances    | $142,772                | $134,592 | $117,386 |
|   Other borrowings | 2,511                   | 2,884 | 3,259 |
|                         |                         |  |  |
| Average Balance:             |                         |  |  |
|   FHLB advances    | $132,558                | $120,687 | $110,609 |
|   Other borrowings | 2,358                   | 2,728 | 3,103 |

         The following table sets forth certain information as to our borrowings at the dates indicated.

**December 31,200420032002(Dollars in Thousands) FHLB advances$139,427$134,592$115,403Other borrowings2,1452,5112,884     Total borrowings$141,572$137,103$118,287Weighted average interest rate of FHLB advances3.81%4.42%5.09%Weighted average interest rate of other borrowings(1)---------**

_________________

(1)  Our other borrowings are capitalized loans with no current interest expense.

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**Subsidiary and Other Activities**

         As a federally chartered savings bank, Mutual Federal is permitted by Office of Thrift Supervision regulations to invest up to 2% of itsassets, or $16.7 million at December 31, 2004, in the stock of, or unsecured loans to, service corporation subsidiaries. Mutual Federal may invest an additional 1% of its assets in servicecorporations where such additional funds are used for inner-city or community development purposes. Service corporations may engage in activities not permitted for Mutual Federal and are not requiredto be controlled by Mutual Federal. Mutual Federal also is authorized to invest an unlimited amount in operating subsidiaries that only may engage in activities authorized for Mutual Federal and mustbe controlled by Mutual Federal.

         At December 31, 2004, Mutual Federal had one active subsidiary, First M.F.S.B. Corporation, which is a service corporation. First M.F.S.B.owns stock in Family Financial Life Insurance Company, a life and accident and health insurance company chartered in Indiana. Family Financial Life primarily sells mortgage and credit life insurance,as well as accident and disability insurance. It also issues and services annuity contracts. As of December 31, 2004, Mutual Federal's total investment in this subsidiary was $590,000. For the yearended December 31, 2004, First M.F.S.B. reported no income or loss.

         On January 25, 2002, *MutualFirst* purchased 26.9% of Indiana Title Insurance Co., LLC ("ITIC"), a full service title insurancecompany. As of December 31, 2004, *MutualFirst*'s investment in ITIC was $982,000. For the year ended December 31, 2004, *MutualFirst* recorded net income of $25,000 from ITIC, whichconsisted of title insurance commissions and other fees less expenses. The investment in ITIC is being accounted for on the equity method.

**Competition**

         We face strong competition in originating real estate and other loans and in attracting deposits. Competition in originating real estate loanscomes primarily from other savings institutions, commercial banks, credit unions and mortgage bankers. Other savings institutions, commercial banks, credit unions and finance companies providevigorous competition in consumer lending.

         We attract our deposits through our branch office system. Competition for deposits comes principally from other savings institutions,commercial banks and credit unions located in the same community, as well as mutual funds and other alternative investments. We compete for deposits by offering superior service and a variety ofaccount types at competitive rates.

**Employees**

         At December 31, 2004, we had a total of 220 full-time and 45 part-time employees. Our employees are not represented by any collectivebargaining group. Management considers its employee relations to be good.

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****HOW WE ARE REGULATED****

         Set forth below is a brief description of certain laws and regulations that apply to us. This description, as well as other descriptions oflaws and regulations contained in this Form 10-K, is not complete and is qualified in its entirety by reference to the applicable laws and regulations.

         Legislation is introduced from time to time in the United States Congress that may affect our operations. In addition, the regulations bywhich we are governed may be amended from time to time. Any such legislation or regulatory changes could adversely affect us. We cannot assure you as to whether or in what form any such changes willoccur.

**General**

         Mutual Federal, as a federally chartered savings institution, is subject to federal regulation and oversight by the Office of ThriftSupervision extending to all aspects of Mutual Federal's operations. Mutual Federal also is subject to regulation and examination by the FDIC, which insures the deposits of Mutual Federal to themaximum extent permitted by law, and to requirements of the Federal Reserve Board. Federally chartered savings institutions are required to file periodic reports with the Office of Thrift Supervisionand are subject to periodic examinations by the Office of Thrift Supervision and the FDIC. The investment and lending authority of savings institutions are prescribed by federal laws and regulations,and savings institutions are prohibited from engaging in any activities not permitted by such laws and regulations. This regulation and supervision primarily is intended for the protection ofdepositors and not for the purpose of protecting stockholders.

         The Office of Thrift Supervision regularly examines Mutual Federal and prepares reports for the consideration of Mutual Federal's board ofdirectors on any deficiencies that it may find in Mutual Federal's operations. The FDIC also has the authority to examine Mutual Federal in its role as the administrator of the Savings AssociationInsurance Fund. Mutual Federal's relationship with its depositors and borrowers also is regulated to a great extent by both Federal and state laws, especially in such matters as the ownership ofsavings accounts and the form and content of Mutual Federal's mortgage requirements. Any change in these laws and regulations, whether by the FDIC, the Office of Thrift Supervision or Congress, couldhave a material adverse impact on our operations.

***MutualFirst***

         Pursuant to regulations of the Office of Thrift Supervision and the terms of *MutualFirst*'s Maryland articles of incorporation, thepurpose and powers of *MutualFirst* are to pursue any or all of the lawful objectives of a thrift holding company and to exercise any of the powers accorded to a thrift holding company.

             *MutualFirst* is a unitary savings and loan holding company subject to regulatoryoversight by the Office of Thrift Supervision. *MutualFirst* is required to register and file reports with the Office of Thrift Supervision and is subject to regulation and examination by theOffice of Thrift Supervision. In addition, the Office of Thrift Supervision has enforcement authority over us and our non-savings institution subsidiaries.

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*MutualFirst* generally is not subject to activity restrictions. If *MutualFirst* acquired control of another savings institution as aseparate subsidiary, it would become a multiple savings and loan holding company, and its activities and any of its subsidiaries (other than Mutual Federal or any other savings institution) wouldgenerally become subject to additional restrictions.

         If Mutual Federal fails the qualified thrift lender test, *MutualFirst* must obtain theapproval of the Office of Thrift Supervision prior to continuing, directly or through other subsidiaries, any business activity other than those approved for multiple thrift holding companies ortheir subsidiaries. In addition, within one year of such failure *MutualFirst* must register as, and will become subject to, the restrictions applicable to bank holding companies. Theactivities authorized for a bank holding company are more limited than the activities authorized for a unitary or multiple thrift holding company. See "- Qualified Thrift LenderTest."

**Mutual Federal**

         The Office of Thrift Supervision has extensive authority over the operations of savingsinstitutions. Mutual Federal is required to file periodic reports with the Office of Thrift Supervision and is subject to periodic examinations by the Office of Thrift Supervision and the FDIC. Whenthese examinations are conducted by the Office of Thrift Supervision and the FDIC, the examiners may require Mutual Federal to provide for higher general or specific loan lossreserves.

         The Office of Thrift Supervision also has extensive enforcement authority over all savingsinstitutions and their holding companies, including Mutual Federal and *MutualFirst*. This enforcement authority includes, among other things, the ability to assess civil money penalties, toissue cease-and-desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsoundpractices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the Office of Thrift Supervision. Except under certaincircumstances, final enforcement actions by the Office of Thrift Supervision must be publicly disclosed.

         In addition, the investment, lending and branching authority of Mutual Federal is prescribed byfederal laws and it is prohibited from engaging in any activities not permitted by such laws. For instance, no savings institution may invest in non-investment grade corporate debt securities. Inaddition, the permissible level of investment by federal institutions in loans secured by non-residential real property may not exceed 400% of total capital, except with approval of the Office ofThrift Supervision. Federal savings institutions are also generally authorized to branch nationwide. Mutual Federal is in compliance with the noted restrictions.

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         Mutual Federal's general permissible lending limit for loans-to-one-borrower is equal to the greaterof $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital andsurplus). At December 31, 2004, Mutual Federal's lending limit under this restriction was $12.7 million. Mutual Federal is in compliance with the loans-to-one-borrowerlimitation.

         The Office of Thrift Supervision, as well as the other federal banking agencies, has adoptedguidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest raterisk exposure and compensation and other employee benefits. Any institution which fails to comply with these standards must submit a compliance plan.

**Regulatory Capital Requirements**

         Federally insured savings institutions, such as Mutual Federal, are required to maintain a minimumlevel of regulatory capital. The Office of Thrift Supervision has established capital standards, including a tangible capital requirement, a leverage ratio or core capital requirement and arisk-based capital requirement applicable to such savings institutions. These capital requirements must be generally as stringent as the comparable capital requirements for national banks. The Officeof Thrift Supervision also may impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.

         The capital regulations require tangible capital of at least 1.5% of adjusted total assets, asdefined by regulation. Tangible capital generally includes common stockholders' equity and retained income, and certain noncumulative perpetual preferred stock and related income. In addition, allintangible assets, other than a limited amount of purchased mortgage servicing rights, must be deducted from tangible capital for calculating compliance with the requirement. At December 31, 2004,Mutual Federal had $894,000 of intangible assets.

         At December 31, 2004, Mutual Federal had tangible capital of $84.2 million, or 10.00% ofadjusted total assets, which is approximately $71.6 million above the minimum requirement of 1.5% of adjusted total assets in effect on that date.

         The capital standards also require core capital equal to at least 3.0% of adjusted total assets. Core capitalgenerally consists of tangible capital plus certain intangible assets, including a limited amount of purchased credit card relationships. As a result of the prompt corrective action provisionsdiscussed below, however, a savings institution must maintain a core capital ratio of at least 4.0% to be considered adequately capitalized unless its supervisory condition is such to allow it tomaintain a 3.0% ratio. At December 31, 2004, Mutual Federal had $894,000 of intangible assets, none of which qualified for inclusion in core capital.

         At December 31, 2004, Mutual Federal had core capital equal to $84.0 million, or 10.00% of adjusted totalassets, which is $59.0 million above the minimum requirement of 3.0% in effect on that date.

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         The Office of Thrift Supervision also requires savings institutions to have total capital of at least 8.0% of risk-weightedassets. Total capital consists of core capital, as defined above, and supplementary capital. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualifyas core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the risk-based requirement only tothe extent of core capital. The Office of Thrift Supervision is also authorized to require a savings institution to maintain an additional amount of total capital to account for concentration ofcredit risk and the risk of non-traditional activities. At December 31, 2004, Mutual Federal had $6.4 million of general loan loss reserves, which was less than 1.25% of risk-weightedassets.

         In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, will be multiplied bya risk weight, ranging from 0% to 100%, based on the risk inherent in the type of asset. For example, the Office of Thrift Supervision has assigned a risk weight of 50% for prudently underwrittenpermanent one- to four-family first lien mortgage loans not more than 90 days delinquent and having a loan-to-value ratio of not more than 80% at origination unless insured to such ratio by aninsurer approved by Fannie Mae or Freddie Mac.

         As of December 31, 2004, Mutual Federal had total risk-based capital of $90.6 million and risk-weighted assets of $605.5million; or total capital of 14.96% of risk-weighted assets. This amount was $42.2 million above the 8.0% requirement in effect on that date.

         The Office of Thrift Supervision and the FDIC are authorized and, under certain circumstances, required to take actions against savingsinstitutions that fail to meet their capital requirements. The Office of Thrift Supervision is generally required to restrict the activities of an "undercapitalized institution," which is aninstitution with less than either a 4% core capital ratio, a 4% Tier 1 risked-based capital ratio or an 8.0% risk-based capital ratio. Any such institution must submit a capital restoration plan and,until such plan is approved by the Office of Thrift Supervision, may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may notmake capital distributions. The Office of Thrift Supervision is authorized to impose the additional restrictions that are applicable to significantly undercapitalized institutions.

         As a condition to the approval of the capital restoration plan, any company controlling an undercapitalized institution must agree that itwill enter into a limited capital maintenance guarantee with respect to the institution's achievement of its capital requirements.

         Any savings institution that fails to comply with its capital plan or has Tier 1 risk-based or core capital ratio of less than 3.0% or arisk-based capital ratio of less than 6.0% and is considered "significantly undercapitalized" must be made subject to one or more additional specified actions and operating restrictions which maycover all aspects of its operations and may include a forced merger or acquisition of the institution. An institution that becomes "critically undercapitalized" because it has a tangible capitalratio of 2.0% or less is subject to further restrictions on its activities in addition to those applicable to significantly undercapitalized institutions. In addition, the Office of ThriftSupervision must appoint a receiver, or conservator with the concurrence of the FDIC, for a savings institution, with certain limited exceptions, within 90 days after it becomes criticallyundercapitalized. Any undercapitalized institution is also subject to the general enforcement authority of the Office of Thrift Supervision and the FDIC, including the appointment of a conservator ora receiver.

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         The Office of Thrift Supervision is also generally authorized to reclassify an institution into a lower capital category and impose therestrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

         The imposition by the Office of Thrift Supervision or the FDIC of any of these measures on Mutual Federal may have a substantial adverseeffect on our operations and profitability.

**Limitations on Dividends and Other Capital Distributions**

         Office of Thrift Supervision regulations impose various restrictions on distributions of capital, which include dividends, stock redemptionsor repurchases, cash-out mergers and other transactions charged to the capital account.

         Generally, savings institutions, such as Mutual Federal, that before and after the proposed distribution remain well-capitalized, may makecapital distributions during any calendar year equal to the greater of 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an institution deemed tobe in need of more than normal supervision by the Office of Thrift Supervision may have its dividend authority restricted by the Office of Thrift Supervision. Mutual Federal may pay dividends inaccordance with this general authority.

         Savings institutions proposing to make any capital distribution need not submit written notice to the Office of Thrift Supervision prior tosuch distribution unless they are a subsidiary of a holding company or would not remain well-capitalized following the distribution. Savings institutions that do not, or would not meet their currentminimum capital requirements following a proposed capital distribution or propose to exceed these net income limitations must obtain Office of Thrift Supervision approval prior to making suchdistribution. The Office of Thrift Supervision may object to the distribution during that 30-day period based on safety and soundness concerns. See "- Regulatory Capital Requirements."

**Qualified Thrift Lender Test**

         All savings institutions, including Mutual Federal, are required to meet a qualified thrift lender test to avoid certain restrictions on theiroperations. This test requires a savings institution to have at least 65% of its portfolio assets, as defined by regulation, in qualified thrift investments on a monthly average for nine out of every12 months on a rolling basis. As an alternative, the savings institution may maintain 60% of its assets in the assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under either test,such assets primarily consist of residential housing related loans and investments. At December 31, 2004, Mutual Federal met the test and has met the test since its effectiveness.

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         Any savings institution that fails to meet the qualified thrift lender test must convert to a national bank charter, unless it requalifies asa qualified thrift lender and thereafter remains a qualified thrift lender. If an institution does not requalify and converts to a national bank charter, it must remain Savings Association InsuranceFund-insured until the FDIC permits it to transfer to the Bank Insurance Fund. If such an institution has not yet requalified or converted to a national bank, its new investments and activities arelimited to those permissible for both a savings institution and a national bank, and it is limited to national bank branching rights in its home state. In addition, the institution is immediatelyineligible to receive any new Federal Home Loan Bank borrowings and is subject to national bank limits for payment of dividends. If such an institution has not requalified or converted to a nationalbank within three years after the failure, it must divest of all investments and cease all activities not permissible for a national bank. In addition, it must repay promptly any outstanding FederalHome Loan Bank borrowings, which may result in prepayment penalties. If any institution that fails the qualified thrift lender test is controlled by a holding company, then within one year after thefailure, the holding company must register as a bank holding company and become subject to all restrictions on bank holding companies.

**Federal Reserve System**

         The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against theirtransaction accounts, primarily checking, NOW and Super NOW checking accounts. At December 31, 2004, Mutual Federal was in compliance with these reserve requirements. The balances maintained to meetthe reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements that may be imposed by the Office of Thrift Supervision.

         Savings institutions are authorized to borrow from the Federal Reserve Bank "discount window," but Federal Reserve Board regulations requireinstitutions to exhaust other reasonable alternative sources of funds, including Federal Home Loan Bank borrowings, before borrowing from the Federal Reserve Bank.

**Federal Taxation**

***             General.*** We are subject to federal income taxation in the same general manner as othercorporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensivedescription of the tax rules applicable to us. Mutual Federal's federal income tax returns have been closed without audit by the IRS through its year ended December 31, 1999. *MutualFirst* andMutual Federal will file a consolidated federal income tax return for fiscal year 2004.

         ***Taxable Distributions and Recapture.*** Prior to 1998, bad debt reserves created prior to the year ended December 31,1997 were subject to recapture into taxable income if Mutual Federal failed to meet certain thrift asset and definitional tests. Federal legislation eliminated these thrift recapture rules. However,under current law, pre-1988 reserves remain subject to recapture should Mutual Federal make certain non-dividend distributions or cease to maintain a thrift/bank charter.

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         ***Minimum Tax.*** The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regulartaxable income plus certain tax preferences, called alternative minimum taxable income. The alternative minimum tax is payable to the extent such alternative minimum taxable income is in excess of anexemption amount. Net operating losses can offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular taxliabilities in future years. Mutual Federal is subject to the alternative minimum tax, and has $173,000 available as credits for carryover.

         ***Corporate Dividends-Received Deduction.****MutualFirst* may eliminate from its income dividends received fromMutual Federal as a wholly owned subsidiary of *MutualFirst* if it elects to file a consolidated return with Mutual Federal. The corporate dividends-received deduction is 100% or 80%, in thecase of dividends received from corporations with which a corporate recipient does not file a consolidated tax return, depending on the level of stock ownership of the payor of the dividend.Corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct 70% of dividends received or accrued on their behalf.

**State Taxation**

         Mutual Federal is subject to Indiana's financial institutions tax, which is imposed at a flat rate of 8.5% on "adjusted gross income"apportioned to Indiana. "Adjusted gross income," for purposes of the financial institutions tax, begins with taxable income as defined by Section 63 of the Internal Revenue Code and incorporatesfederal tax law to the extent that it affects the computation of taxable income. Federal taxable income is then adjusted by several Indiana modifications.

         Other applicable state taxes include generally applicable sales and use taxes plus real and personal property taxes.

**Internet Website**

         We maintain a website with the address of www.mfsbank.com. The information contained on our website is not included as a part of, orincorporated by reference into, this Annual Report on Form 10-K. This Annual Report on Form 10-K and our other reports, proxy statements and other information, including earnings press releases,filed with the SEC are available on that website through a link to the SEC's website at "Inside MFSB - *MutualFirst* Financial Inc. - SEC Filings." For more information regarding access tothese filings on our website, please contact our Corporate Secretary, *MutualFirst* Financial, Inc., 110 E. Charles Street, Muncie, Indiana, 47305-2419; telephone number (765) 747-2800.

**Executive Officers Who Are Not Directors**

         The business experience for at least the past five years for each of our executive officers who do not serve as directors is set forthbelow.

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         ***Steven R. Campbell***. Age 61 years. Mr. Campbell is Senior Vice President of Mutual Federal's Retail Banking Division,a position he has held since 1991. He has been employed by Mutual Federal since 1984.

         ***Timothy J. McArdle***. Age 54 years. Mr. McArdle, a certified public accountant, has served as Senior Vice President ofMutual Federal since 1995, and Treasurer of Mutual Federal since 1986. He also serves as Senior Vice President, Treasurer and Controller of *MutualFirst* Financial. He has been employed byMutual Federal since 1981.

         ***Stephen C. Selby***. Age 59 years. Since 1995, Mr. Selby has served as Senior Vice President of the Operations Divisionat Mutual Federal. Prior to 1995, he served as Vice President of the Operations Division for nine years. Mr. Selby has served in various other capacities at Mutual Federal since 1964.

         ***Clifford E. Keys***. Age 76 years. Mr. Keys is Vice President of the Administration Division since joining MutualFederal in January 2003. Prior to 2003 he was Vice-Chairman and President of Sherry Laboratories Inc.

**Item 2. Description of Property**

         At December 31, 2004, we had 18 full service offices. We own the office building in which our home office and executive offices are located.At December 31, 2004, we owned all but two of our other branch offices. The net book value of our investment in premises, equipment and leaseholds, excluding computer equipment, was approximately$10.7 million at December 31, 2004.

         We anticipate opening another branch office in July 2005. We also anticipate keeping one branch open from the Fidelity Federal acquisition.Otherwise, we believe that our current facilities are adequate to meet our present and immediately foreseeable needs.

         We utilize a third party service provider to maintain our database of depositor and borrower customer information. At December 31, 2004, thenet book value of the data processing and computer equipment utilized by us was $1.5 million**.**

**Item 3. Legal Proceedings**

         From time to time, we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. We do notanticipate incurring any material liability as a result of such litigation.

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

         No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31,2004.

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****PART II****
| **Item 5.** | **Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities** |
|-------------|---------------------------------------------------------------------------------------------------------------------|

         The common stock for *MutualFirst* Financial, Inc. is traded under the symbol "MFSF" on the Nasdaq National Market. The table belowshows the high and low closing prices for our common stock for the periods indicated. This information was provided by the Nasdaq. At March 3, 2005, there were 4,686,564 shares of common stock issuedand outstanding and approximately 1,412 shareholders of record.

|                                                               | Stock Price | Dividends per Share |
|---------------------------------------------------------------|-------------|---------------------|
|                                                               | High        | Low                 |  |
| **Quarter Ending:**                                           |
|      First Quarter (ended 03/31/03)  | $21.849     | $19.860             | $.10 |
|      Second Quarter (ended 06/30/03) | $23.870     | $21.390             | $.10 |
|      Third Quarter (ended 09/30/03)  | $26.730     | $23.400             | $.11 |
|      Fourth Quarter (ended 12/31/03) | $29.200     | $25.050             | $.11 |
|                                                          |
|                                                               | Stock Price | Dividends per Share |
|                                                               | High        | Low                 |  |
| **Quarter Ending:**                                           |
|      First Quarter (ended 03/31/04)  | $25.930     | $24.010             | $.11 |
|      Second Quarter (ended 06/30/04) | $24.400     | $21.490             | $.12 |
|      Third Quarter (ended 09/30/04)  | $24.410     | $21.520             | $.12 |
|      Fourth Quarter (ended 12/31/04) | $24.850     | $23.500             | $.12 |

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

            On March 10, 2004, the Company's Board of Directors authorized management to repurchase an additional 10% of the Company's outstanding stock, or approximately 520,000 shares over a twelve-month period.  Information on the shares purchased during the fourth quarter of 2004 is as follows:

|                                      | Total Number ofShares Purchased | Average PricePer Share | Total Number ofShares PurchasedAs Part of PubliclyAnnounced Plan | Maximum Number ofShares that May YetBe PurchasedUnder the Plan |
|--------------------------------------|---------------------------------|------------------------|------------------------------------------------------------------|----------------------------------------------------------------|
|                                      |                                 |                        |                                                                  | 116,003                                                        | (1) |
| October 1, 2004 - October 31, 2004   | --                              | $0.00                  | --                                                               | 116,003                                                        |  |
| November 1, 2004 - November 30, 2004 | 30,000                          | 23.99                  | 30,000                                                           | 86,003                                                         |  |
| December 1, 2004 - December 31, 2004 | 49,152                          | 23.96                  | 49,152                                                           | 36,851                                                         |  |
|                                      |                                 |                        |                                                                  |                                                                |  |
|                                      | 79,152                          | $23.97                 | 79,152                                                           |                                                                |  |

___________________(1)  Amount represents the number of shares available to be repurchased under the plan as of September 30, 2004.

            On December 22, 2004, the Company's Board of Directors authorized management to repurchase an additional 10% of the Company's stock or approximately 470,000 shares over a twelve-month period.  No shares were repurchased under this authority during the fourth quarter of 2004.

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**Item 6.       Selected Financial Data**

**SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA**

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

|                                                                              | **At or For the Year Ended December 31,** |
|------------------------------------------------------------------------------|-------------------------------------------|
|                                                                              | **2004**                                  | **2003** | **2002** | **2001** | **2000** |
|                                                                              | (In Thousands)                            |
|                                                                         |                                           |  |  |  |  |
| Selected FinancialCondition Data                                             |                                           |  |  |  |  |
|                                                                              |                                           |  |  |  |  |
| Total Assets                                                                 | $839,387                                  | $823,791 | $775,798 | $769,328 | $770,370 |
| Cash and cash equivalents                                                    | 19,743                                    | 23,068 | 23,620 | 30,558 | 21,046 |
| Loans, net                                                                   | 713,022                                   | 703,981 | 641,113 | 636,362 | 639,362 |
| Investment Securities:                                                       |                                           |  |  |  |  |
|    Available-for -sale, at fair     value | 39,409                                    | 33,472 | 42,362 | 31,580 | 35,142 |
|    Held-to-maturity                                                | 0                                         | 0 | 0 | 0 | 10,539 |
| Total  deposits                                                    | 600,407                                   | 579,362 | 550,364 | 538,878 | 514,710 |
| Total borrowings                                                             | 141,572                                   | 137,103 | 118,287 | 110,743 | 116,182 |
| Total stockholders' equity                                                   | 87,860                                    | 97,520 | 96,717 | 109,744 | 129,941 |
|                                                                         |                                           |  |  |  |  |
| Selected Operations Data                                                     |                                           |  |  |  |  |
|                                                                              |                                           |  |  |  |  |
| Total interest income                                                        | $44,400                                   | $46,442 | $50,440 | $54,940 | $41,180 |
| Total interest expense                                                       | 17,476                                    | 19,099 | 23,119 | 29,081 | 21,645 |
|    Net interest income                                             | 26,924                                    | 27,343 | 27,321 | 25,859 | 19,535 |
| Provision for loan losses                                                    | 1,557                                     | 1,450 | 1,713 | 1,282 | 685 |
| Net interest income after     provision for loan losses  | 25,367                                    | 25,893 | 25,608 | 24,577 | 18,850 |
| Service fee income                                                           | 3,193                                     | 2,927 | 2,785 | 2,626 | 2,070 |
| Gain on sale of loans and                                                    |                                           |  |  |  |  |
|    investment securities                                           | 727                                       | 1,364 | 1,365 | 1,350 | 144 |
| Other non-interest income                                                    | 2,304                                     | 1,684 | 1,798 | 2,126 | 1,402 |
| Total non-interest income                                                    | 6,224                                     | 5,975 | 5,948 | 6,102 | 3,616 |
| Salaries and employee   benefits                              | 16,167                                    | 13,097 | 12,454 | 12,288 | 7,496 |
| Other  expenses                                                    | 8,149                                     | 7,369 | 7,246 | 7,232 | 5,629 |
| Total non-interest expense                                                   | 24,316                                    | 20,466 | 19,700 | 19,520 | 13,125 |
| Income before taxes                                                          | 7,275                                     | 11,402 | 11,856 | 11,159 | 9,341 |
| Income tax expense                                                           | 1,753                                     | 3,340 | 3,376 | 3,079 | 3,106 |
| Net income                                                                   | $5,522                                    | $8,062 | $8,480 | $8,080 | $6,235 |

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|                                                                                                                                                                      | **At or For the Year Ended December 31,** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|
|                                                                                                                                                                      | **2004**                                  | **2003** | **2002** | **2001** | **2000** |
| Selected Financial Ratios and OtherFinancial Data:                                                                                                                   |                                           |  |  |  |  |
|                                                                                                                                                                      |                                           |  |  |  |  |
| Performance Ratios:                                                                                                                                                  |                                           |  |  |  |  |
|    Return on average assets (ratio      of net income to average total      assets)       | 0.67%                                     | 1.01% | 1.09% | 1.05% | 1.09% |
|    Return on average equity (ratio of      net income to average equity)                                                | 5.84                       | 8.43    | 8.36    | 6.80    | 6.15    |
|    Interest rate spread information:                                                                                                                  |                                           |  |  |  |  |
|    Average during the period                                                                                                                          | 3.46                       | 3.56    | 3.59    | 3.22    | 3.09    |
|    Net interest margin(1)                                                                                                                             | 3.60                       | 3.73    | 3.84    | 3.67    | 3.71    |
|    Ratio of operating expense to      average total assets                                                              | 2.94                       | 2.56    | 2.53    | 2.54    | 2.30    |
|    Ratio of average interest-earning     assets to average interest-       bearing liabilities | 105.95                     | 106.53    | 107.71    | 110.85    | 115.17    |
|    Efficiency ratio(2)                                                                                                                                | 73.26                      | 61.43    | 59.21    | 61.08    | 56.69    |
|                                                                                                                                                                 |                                           |  |  |  |  |
| Asset Quality Ratios: (4)                                                                                                                                            |                                           |  |  |  |  |
|    Non-performing assets to     total assets                                                                                      | 0.65                       | 0.57    | 0.89    | 1.05    | 0.56    |
|    Non-performing loans to     total loans                                                                                        | 0.57                       | 0.46    | 0.79    | 1.03    | 0.53    |
|    Allowance for loan losses       to non-performing loans                                                              | 167.32                     | 208.26    | 123.35    | 82.40    | 189.13    |
|     Allowance for loan losses       to loans  receivable, net                                                 | 0.95                       | 0.95    | 0.97    | 0.86    | 1.01    |
|                                                                                                                                                                 |                                           |  |  |  |  |
| Capital Ratios:                                                                                                                                                      |                                           |  |  |  |  |
|    Equity to total assets (4)                                                                                                                         | 10.47                      | 11.87    | 12.47    | 14.25    | 16.87    |
|    Average equity to average assets      assets                                                                         | 11.50                      | 11.97    | 13.04    | 15.44    | 17.81    |
|                                                                                                                                                                 |                                           |  |  |  |  |
| Share and Per Share Data:                                                                                                                                            |                                           |  |  |  |  |
|    Average common shares       outstanding:                                                                             |                                           |  |  |  |  |
|      Basic                                                                                                                                  | 4,625,437                  | 4,904,007    | 5,483,929    | 6,949,879    | 5,558,377    |
|      Diluted                                                                                                                                | 4,772,036                  | 5,084,514    | 5,597,307    | 6,964,305    | 5,558,377    |
|      Per share:                                                                                                                             |                                           |  |  |  |  |
|      Basic earnings                                                                                                                         | $1.19                      | $1.64    | $1.55    | $1.16    | $1.12    |
|      Diluted earnings                                                                                                                       | $1.16                      | $1.59    | $1.51    | $1.16    | $1.12    |
|      Dividends                                                                                                                              | 0.47                       | 0.42    | 0.37    | 0.32    | 0.28    |
|                                                                                                                                                       |                                           |  |  |  |  |
| Dividend payout ratio (3)                                                                                                                                            | 40.52%                                    | 26.42% | 24.50% | 27.59% | 25.00% |
|                                                                                                                                                                 |                                           |  |  |  |  |
| Other Data:                                                                                                                                                          |                                           |  |  |  |  |
|    Number of full-service offices                                                                                                                     | 18                         | 17    | 17    | 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 diluted earnings per share(4)  At end of period

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| **Item 7.** | **Management's Discussion and Analysis of Financial Condition and Results of Operation** |
|-------------|------------------------------------------------------------------------------------------|

**MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Introduction**

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

         On March 3, 2005, Mutual Federal announced that it had entered into a definitive agreement to purchase assets and assume liabilitiesrepresenting the operations of Fidelity Federal Savings Bank of Marion, Indiana. Mutual Federal will pay $20 million in cash for these net assets, subject to adjustment. Fidelity Federal Savings Bankis a subsidiary of First Financial Bancorp. The acquisition, which is subject to regulatory approval, is expected to close during the third quarter of 2005.

         Our principal business consists of attracting retail deposits from the general public and investing those funds primarily in permanent loanssecured by first mortgages on owner-occupied, one-to-four-family residences, a variety of consumer loans, loans secured by commercial and multi-family real estate and commercial business loans. Weare headquartered in Muncie, Indiana with 18 retail offices primarily serving Delaware, Randolph, Kosciusko, and Grant counties in Indiana. We also originate mortgage loans in contiguous counties,and we originate indirect consumer loans throughout Indiana.

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

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

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**Management Strategy**

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

         Financial highlights of our strategy include:

- *Continuing as a Diversified Lender.*  We have been successful in diversifying our loan portfolio to reduce our reliance on any one type of loan. From 1995 through 2000approximately 36% of our loan portfolio consisted of loans other than one-to four- family real estate loans. Since that time to the end of 2004, that percentage has increased to 47%.
- *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 2004, we originated $117.4 million of one- to four- family residential loans.
- *Continuing To Focus On Asset Quality.*  Non-performing assets to total assets was .65% at December 31, 2004, in line with our regional peer group. We are confident thatour 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, 2004, ourratio of stockholders' equity to total assets was 10.5%.

**Financial Condition at December 31, 2004 Compared to December 31, 2003**

         **General.** Our total assets increased $15.6 million during 2004, ending the year at $839.4 million compared to $823.8 millionat December 31, 2003, primarily due to increases in loans and investments. Liabilities increased $25.3 million due to increased deposits and borrowings. Stockholders' equity decreased to $87.9million as stock repurchases and dividends totaling $16.9 million were partially offset by net income of $5.5 million.

         **Loans**. Our net loan portfolio increased $9.0 million from $704.0 million at December 31, 2003, to $713.0 million at December31, 2004. Consumer loans increased $4.8 million or 2.5% from $190.7 million at December 31, 2003 to $195.5 million at December 31, 2004. Most of the consumer loan growth came from home equity andhome improvements loans, which increased $6.4 million or 13.9% from $46.3 million to $52.8 million and auto loans, which increased $2.4 million or 11.3% from $20.9 million to $23.3 million.

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         **Allowance For Loan Loss.** The allowance for loan loss increased to $6.9 million at December 31, 2004 from $6.8 million atDecember 31, 2003, an increase of $88,000 or 1.3%. Net charge offs were $1.5 million during 2004, as compared to net charge offs of $957,000 for 2003. This, along with a $1.6 million loan lossprovision during 2004, resulted in the allowance for loan losses as a percentage of total loans remaining stable at .95% at December 31, 2004 when comparing to December 31, 2003. The allowance forloan losses as a percentage of non-performing loans was 167.32% and 208.26% at December 31, 2004 and December 31, 2003, respectively. Non-performing loans were $4.1 million or .57% of total loans atDecember 31, 2004 compared to $3.3 million or .46% at December 31, 2003. The increase in the allowance for loan losses was due to continued poor economic conditions in some of our markets, theincrease in the portfolio risk due to the increased percentage of consumer and commercial loans in the portfolio and the increases in loan balances. See "Critical Accounting Policies."

         **Securities.** Investment securities amounted to $39.4 million at December 31, 2004 compared to $33.5 million at December 31,2003, a 17.7% increase. This increase was primarily due to the lack of anticipated loan growth and the resultant excess liquidity.

         **Liabilities.** Our total liabilities increased $25.3 million or 3.5% to $751.5 million at December 31, 2004 from $726.3 millionat December 31, 2003. This increase was due primarily to an increase in deposits of $21.0 million, and an increase in borrowed funds of $4.8 million to provide funding for stock repurchases and tofund loan and investment growth.

         **Stockholders' Equity.** Stockholders' equity decreased $9.6 million from $97.5 million at December 31, 2003 to $87.9 million atDecember 31, 2004. The decrease was due primarily to the repurchase of 623,000 shares of *MutualFirst* common stock at a cost of $14.7 million and dividend payments of $2.1 million. Thesedecreases were partially offset by net income of $5.5 million, Employee Stock Ownership Plan (ESOP) shares earned of $752,000, RRP shares earned (including tax benefits) of $691,000 and stock optionsexercised for $554,000. Also, the unrealized gain on the market value of securities available for sale compared to their book value decreased $322,000 from a gain of $234,000 at December 31, 2003 toa loss of $89,000 at December 31, 2004.

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

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

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

|                                                                          | Year ended December 31,  |
|--------------------------------------------------------------------------|--------------------------|
|                                                                          | 2004                     | 2003 | 2002 |
|                                                                          | Average                  | Interest | Average | Average | Interest | Average | Average | Interest | Average |
|                                                                          | Outstanding              | Earned/ | Yield/ | Outstanding | Earned/ | Yield/ | Outstanding | Earned/ | Yield/ |
|                                                                          | Balance                  | Paid | Rate | Balance | Paid | Rate | Balance | Paid | Rate |
|                                                                          |                          |  |  | (Dollars in thousands) |
| Interest-Earning Assets:                                                 |
|  Interest-bearing deposits                                          | $   4,413 | $       29 | 0.66% | $   7,478 | $       71 | 0.95% | $  11,215 | $     175 | 1.56% |
|  Mortgage-backed securities available-for-sale (1)                  | 11,652                   | 449 | 3.87    | 13,969 | 423 | 3.03    | 11,451 | 677 | 5.91    |
|  Investment securities available-for-sale (1)                       | 23,365                   | 747 | 3.21    | 19,167 | 707 | 3.69    | 19,525 | 916 | 4.69    |
|  Loans (2)                                                          | 707,832                  | 42,840 | 6.05    | 684,462 | 44,881 | 6.56    | 662,212 | 48,247 | 7.29    |
|  Stock in FHLB of Indianapolis                                      | 7,547                    | 335 | 4.44    | 7,112 | 360 | 5.06    | 6,993 | 424 | 6.06    |
|  Total interest-earning assets                                      | 754,809                  | 44,400 | 5.88    | 732,188 | 46,442 | 6.34    | 711,396 | 50,439 | 7.09    |
| Non-interest earning assets, net of allowance                            |                          |  |  |  |  |  |  |  |  |
|   for loan losses and unrealized gain/loss                     | 66,819                   |  |  | 66,408 |  |  | 65,818 |  |  |
|      Total assets                               | $821,628                 |  |  | $798,596 |  |  | $777,214 |  |  |
|                                                                          |                          |  |  |  |  |  |  |  |  |
| Interest-Bearing Liabilities:                                            |                          |  |  |  |  |  |  |  |  |
|  Demand and NOW accounts                                            | $  93,111      | 134 | 0.14    | $  87,167 | 189 | 0.22    | $  81,774 | 429 | 0.52    |
|  Savings deposits                                                   | 61,421                   | 156 | 0.25    | 58,804 | 282 | 0.48    | 54,515 | 592 | 1.09    |
|  Money market accounts                                              | 53,490                   | 590 | 1.10    | 47,746 | 488 | 1.02    | 47,301 | 740 | 1.56    |
|  Certificate accounts                                               | 373,981                  | 11,438 | 3.06    | 374,085 | 12,712 | 3.40    | 366,522 | 15,634 | 4.27    |
|  Total deposits                                                     | 582,003                  | 12,318 | 2.12    | 567,802 | 13,671 | 2.41    | 550,112 | 17,395 | 3.16    |
|  Borrowings                                                         | 130,446                  | 5,158 | 3.95    | 119,492 | 5,428 | 4.54    | 110,334 | 5,724 | 5.19    |
|   Total interest-bearing accounts                              | 712,449                  | 17,476 | 2.45    | 687,294 | 19,099 | 2.78    | 660,446 | 23,119 | 3.50    |
| Other liabilities                                                        | 14,677                   |  |  | 15,702 |  |  | 15,385 |  |  |
|   Total liabilities                                            | 727,126                  |  |  | 702,996 |  |  | 675,831 |  |  |
| Stockholders' equity                                                     | 94,502                   |  |  | 95,600 |  |  | 101,383 |  |  |
|      Total liabilities and stockholders' equity | $821,628                 |  |  | $798,596 |  |  | $777,214 |  |  |
|                                                                          |                          |  |  |  |  |  |  |  |  |
| Net earning assets                                                       | $42,360                  |  |  | $44,894 |  |  | $50,950 |  |  |
|                                                                          |                          |  |  |  |  |  |  |  |  |
| Net interest income                                                      |                          | $26,924 |  |  | $27,343 |  |  | $27,320 |  |
|                                                                          |                          |  |  |  |  |  |  |  |  |
| Net interest rate spread (3)                                             |                          |  | 3.43% |  |  | 3.56% |  |  | 3.59% |
|                                                                          |                          |  |  |  |  |  |  |  |  |
| Net yield on average interest-earning assets (4)                         |                          |  | 3.57% |  |  | 3.73% |  |  | 3.84% |
|                                                                          |                          |  |  |  |  |  |  |  |  |
| Average interest-earning assets to                                       |                          |  |  |  |  |  |  |  |  |
|    average interest-bearing liabilities                   | 105.95%                  |  |  | 106.53% |  |  | 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 periodindicated. |

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**Rate/Volume Analysis**

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

|                                                            | Year Ended December 31,                 |
|------------------------------------------------------------|-----------------------------------------|
|                                                            | 2004 vs. 2003                           | 2003 vs. 2002 |
|                                                            | Increase(decrease)Due to                | TotalIncrease(decrease) | Increase(decrease)Due to | TotalIncrease(decrease) |
|                                                            | Volume                                  | Rate | Volume | Rate |
|                                                            | (Dollars in thousands)                  |
| Interest-earning assets:                                   |                                         |  |  |  |  |  |
|   Interest-bearing deposits                      | $   (24)                 | $    (18) | $    (42) | $    (48) | $    (56) | $   (104) |
|   Investment securities:                         |                                         |  |  |  |  |  |
|     Available-for-sale                 | 65                                 | 1  | 66  | 105  | (568) | (463) |
|   Loans receivable                               | 1,496                              | (3,537) | (2,041) | 1,580  | (4,946) | (3,366) |
|   Stock in FHLB of Indianapolis                  | 21                                 | (46) | (25) | 7  | (71) | (64) |
|                                                            |                                         |  |  |  |  |  |
|     Total interest-earning assets      | $1,558                             | $(3,600) | (2,042) | $1,644  | $(5,641) | (3,997) |
|                                                            |                                         |  |  |  |  |  |
|                                                       |                                         |  |  |  |  |  |
| Interest-bearing liabilities:                              |                                         |  |  |  |  |  |
|   Savings deposits                               | $     12  | $   (138) | (126) | $     43  | $   (353) | (310) |
|   Money market accounts                          | 62                                 | 40  | 102  | 7  | (259) | (252) |
|   Demand and NOW accounts                        | 12                                 | (67) | (55) | 27  | (267) | (240) |
|   Certificate accounts                           | (4)                                     | (1,270) | (1,274) | 317  | (3,239) | (2,922) |
|   Borrowings                                     | 471                                | (741) | (270) | 451  | (747) | (296) |
|                                                            |                                         |  |  |  |  |  |
|     Total interest-bearing liabilities | $   553             | $(2,176) | (1,623) | $   845  | $(4,865) | (4,020) |
|                                                            |                                         |  |  |  |  |  |
| Change in net interest income                              |                                         |  | $   (419) |  |  | $     23  |

**Comparison of Results of Operations for Years Ended December 31, 2004 and 2003.**

**            General.** Net income for the year ended December 31, 2004 decreased $2.5 million or 31.5% to $5.5 millioncompared to $8.1 million for the year ended December 31, 2003. Diluted earnings per share decreased 27.0 % from $1.59 in 2003 to $1.16 in 2004 primarily due to one time expenses associated with aseparation agreement entered into in November with the Company's former Senior Vice-President and Director. The Company's earnings for the year would have been $7.2 million ($1.51 for dilutedearnings per share) without the one time expenses.

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         **Net Interest Income.** Interest income decreased $2.0 million, or 4.4% to $44.4 million for the year ended December 31, 2004from $46.4 million for the year ended December 31, 2003. Interest expense decreased $1.6 million, or 8.5% from $19.1 million for the year ended December 31, 2003 to $17.5 million for the year endedDecember 31, 2004. As a result, net interest income decreased $419,000 for the year ended December 31, 2004 compared to the year ended December 31, 2003 due to a lower net interest margin and a lowervolume of net earning assets. The net interest margin decreased from 3.73% for the year ended December 31, 2003, to 3.57% for the year ended December 31, 2004 as yields on interest-earning assetsdecreased at a more rapid rate than the decrease in the cost of interest-bearing liabilities.

         **Interest Income.** The decrease in interest income during the year ended December 31, 2004 was due to a reduction in theaverage yield on our earning assets from 6.34% in 2003 to 5.88% in 2004 as a result of lower market interest rates and payoffs of older higher-rate loans. This decrease was partially offset by a$22.6 million increase in average earning assets from $732.2 million during 2003 to $754.8 million during 2004. The majority of this increase was in average loans receivable, which increased $23.4million from $684.5 in 2003 to $707.8 million in 2004. The average yield on these loans decreased 51 basis points from 6.56% in 2003 to 6.05% in 2004.

         **Interest Expense.** The decrease in interest expense was due to a 33 basis point reduction in the cost of our average interestbearing liabilities from 2.78% in 2003 to 2.45% in 2004 as a result of lower market interest rates. This decrease was partially offset by a $25.2 million increase in average interest bearingliabilities from $687.3 million in 2003 to $712.5 million in 2004. The majority of this increase was in average deposits, which increased $14.2 million from $567.8 million in 2003 to $582.0 millionin 2004. The average cost on these deposits decreased 29 basis points from 2.41% in 2003 to 2.12% in 2004.

         **Provision for Loan Losses.** For the year ended December 31, 2004, the provision for loan losses amounted to $1.6 millioncompared to $1.5 million in 2003. In each period, the provision for loan losses was based on an analysis of individual loans, prior and current year loss experience, overall growth in the portfolio,the change in the portfolio mix and current economic conditions in our markets. We continue to experience poor, while improving, economic conditions in some of our markets and continue to change ourportfolio mix to more non-mortgage related loans. However, the overriding reasons for the increase in the provision for loan losses in 2004 compared to 2003 were an increase in non-performing loansand larger than anticipated charge-offs during the year.

         **Other Income.** Other income for the year ended December 31, 2004 increased slightly to $6.2 million from $6.0 million for theyear ended December 31, 2003. This increase was primarily due to a $375,000 increase in service fee and commission income due to new checking account overdraft services and an addition to thenon-traditional financial services sales force. Also, the limited partnerships experienced a gain of $52,000 in 2004 compared to a $323,000 loss in 2003 due to increased occupancy rates. Thesechanges were partially offset by a decrease in loan sale gains of $627,000 due to fewer mortgage originations in 2004 when compared to the refinance activity in 2003. Also, there was a smallerincrease in cash surrender value of life insurance of $394,000 in 2004 when compared to 2003 due the collection of life insurance proceeds upon the death of a former Director in 2003, with no similarevent occurring in 2004.

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            **Other Expense.** Total operating expenses increased $3.8 million or 18.8% from $20.5 million for the yearended December 31, 2003 to $24.3 million for 2004. Salaries and employee benefits were $16.2 million for the year ended December 31, 2004 compared to $13.1 million for the 2003 period, an increase of$3.1 million or 23.4%. The primary reason for the increase was the one time $2.8 million expense associated with the separation agreement announced in November. Also adding to operating expenses for2004 was a more aggressive marketing effort to promote loans and short term core deposits and the opening of our eighteenth branch office in Warsaw. The costs associated with the separation agreementmentioned above and compliance issues related to the Sarbanes-Oxley legislation increased professional fees $145,000 or 24.0% in 2004 when compared to 2003. ATM expenses were up $95,000 or 19.3% dueprimarily to new card issuances that take place approximately every other year and the addition of an ATM at the new branch location. Other expenses increased $354,000 due to increased postage,telephone, and other expenses primarily related to the new branch opening and regulatory compliance costs.

         **Income Tax Expense.** For the year ended December 31, 2004, income tax expense decreased $1.6 million compared to 2003. Thedecrease was due primarily to decreased taxable income. The effective tax rate decreased from 29.3% to 24.1% when comparing 2003 and 2004, respectively.

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

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

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

         **Interest Income.** The decrease in interest income during the year ended December 31, 2003 was due to a reduction in theaverage yield on our earning assets from 7.09% in 2002 to 6.34% in 2003 as a result of lower market interest rates. This decrease was partially offset by a $21.4 million increase in average earningassets from $711.4 million during 2002 to $732.2 million during 2003. The majority of this increase was in average loans receivable, which increased $22.3 million from $662.2 in 2002 to $684.5million in 2003. The average yield on these loans decreased 63 basis points from 7.29% in 2002 to 6.56% in 2003.

         **Interest Expense.** The decrease in interest expense was due to a 72 basis point reduction in the cost of our average interestbearing liabilities from 3.50% in 2002 to 2.78% in 2003 as a result of lower market

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

         **Other Income.** Other income for the year ended December 31, 2003 increased $27,000 from $5.9 million the year ended December31, 2002 to $6.0 million for the year-end December 31, 2003. This increase was due primarily to a decrease in our equity in losses on limited partnerships, which own various low-income housingprojects that provide federal income tax credits to its equity owners. Our share of the losses was $323,000 for the year ended December 31, 2003 compared to $517,000 the previous year. Another factoraffecting the change in other income was a $142,000 increase in service fee income. Also, cash surrender values of life insurance improved $135,000 in 2003 compared to 2002. These changes werepartially offset by a decrease in net servicing fees of $448,000 (including a $320,000 third quarter valuation reserve for mortgage servicing rights).

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

         **Income Tax Expense.** Income tax expense for the year ended December 31, 2003 was $3.3 million compared to $3.4 million for theyear ended December 31, 2002. The decrease was due primarily to decreased taxable income partially offset by reduced tax credits on low income housing projects which expired in 2003. The effectivetax rate increased from 28.5% to 29.3% when comparing 2002 and 2003, respectively.

**Liquidity and Commitments**

         Mutual Federal is required to maintain adequate levels of investments that qualify as liquid assets under Office of Thrift Supervisionregulations to ensure the institution's safe and sound operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation

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

         Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-terminvestments such as overnight deposits or U.S. Agency securities. We use our sources of funds primarily to meet our ongoing commitments, to pay maturing certificates of deposit and savingswithdrawals, to fund loan commitments and to maintain our portfolio of mortgage-backed securities and investment securities. At December 31, 2004, the total approved loan origination commitmentsoutstanding amounted to $24.7 million. At the same date, the unadvanced portion of construction loans was $7.5 million. At December 31, 2004, unused lines of credit totaled $39.6 million andoutstanding letters of credit totaled $7.2 million. As of December 31, 2004, certificates of deposit scheduled to mature in one year or less totaled $224.6 million, and investment and mortgage-backedsecurities scheduled to mature in one year or less totaled $12.2 million. Based on historical experience, management believes that a significant portion of maturing deposits will remain with us. Weanticipate that we will continue to have sufficient funds, through deposits and borrowings, to meet our current commitments. The following table presents our contractual obligations (excludingdeposit products).

|                                 |  | Payments due by period |
|---------------------------------|--|------------------------|
|                                 |  |                        | Less than | 1-3 | 3-5 | More than |
|                                 |  | Total                  | 1 year | years | years | 5 years |
|                                 |  |                        |  |  |  |  |
| Contractual Obligations         |  |                        |  |  |  |  |
|                                 |  |                        |  |  |  |  |
|    FHLB Advances |  | $139,427               | $63,252 | $41,597 | $14,767 | $19,811 |
|    Notes Payable |  | 2,145                  | 362 | 728 | 829 | 226 |
| Total                           |  | $141,572               | $63,614 | $42,325 | $15,596 | $20,037 |

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**Capital**

         Consistent with our goals to operate a sound and profitable financial organization, Mutual Federal actively strives to remain a "wellcapitalized" institution in accordance with regulatory standards. Total stockholders' equity of *MutualFirst* Financial, Inc. was $87.9 million at December 31, 2004, or 10.5% of total assetson that date. As of December 31, 2004, Mutual Federal exceeded all capital requirements of the Office of Thrift Supervision, with regulatory capital ratios as follows: core capital, 10.00%; Tier Irisk-based capital, 13.90%; and total risk-based capital, 14.96%. The regulatory capital requirements to be considered well capitalized are 5.0%, 6.0% and 10.0%, respectively.

**Recent Accounting Pronouncements**

         On December 12, 2003, the American Institute of Certified Public Accountants issued Statement of Position No. 03-3, *Accounting for CertainLoans or Debt Securities Acquired in a Transfer* (SOP 03-3). SOP 03-3 requires acquired loans with poor credit quality to be recorded at fair value and prohibits carrying over or creation ofvaluation allowances in the initial accounting for the loans. SOP 03-3 also limits the yield that may be accreted to income. SOP 03-3 applies to the purchase of an individual loan, a pool of loans, agroup of loans, and loans acquired in a business combination. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 31, 2004. SOP 03-3 is not expected to have a materialimpact on the Company's results of operations or financial condition.

         In March 2004, the Emerging Issues Task Force (EITF) finalized and issued EITF 03-1, *The Meaning of Other-Than-Temporary Impairment andIts Application to Certain Investments* (EITF 03-1). EITF 03-1 provides recognition and measurement guidance regarding when impairments of equity and debt securities are consideredother-than-temporary requiring a charge to earnings, and also requires additional annual disclosures for investments in unrealized loss positions. The additional annual disclosure requirements werepreviously issued by the EITF in November 2003 and were effective for the Company for the year ended December 31, 2003. In September 2004, the Financial Accounting Standards Board (FASB) issued FASBStaff Position (FSP) EITF 03-1-1, which delays the recognition and measurement provisions of EITF 03-1 pending the issuance of further implementation guidance. We are currently evaluating the effectof the recognition and measurement provisions of EITF 03-1. While our analysis is pending the FASB's revisions to EITF 03-1, we currently believe the adoption of EITF 03-1 will not result in amaterial impact on the Company's results of operations or financial condition.

         In December, 2004, the FASB issued an amendment to SFAS 123 (SFAS 123R) which eliminates the ability to account for share-based compensationtransactions using Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees*, and generally requires that such transactions be accounted for using a fairvalue-based method. SFAS 123R will be effective for the Company beginning July 1, 2005. SFAS123R applies to all awards granted after the required effective date and to awards modified, repurchased,or cancelled after that date. The cumulative effect of initially applying this Statement, if any, is recognized as of the required effective date.

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*             * As of the required effective date, the Company will apply SFAS 123R using a modified version of prospectiveapplication. Under that transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yetbeen rendered, based on the grant-date fair value of those awards calculated under SFAS 123 for either recognition or pro forma disclosures. For periods before the required effective date, a companymay elect to apply a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required forthose periods by SFAS 123.

         The Company will first report compensation cost under SFAS 123R in the third quarter of 2005. The Company will initially measure the cost ofemployee services received in exchange for an award based on its current fair value; the fair value will be remeasured subsequently at each reporting date through the settlement date, and changes infair value will be recognized as compensation cost. We are currently evaluating the effect of the recognition and measurement provisions of SFAS 123R but we currently believe the adoption of SFAS123R will not result in a material impact on the Company's results of operations or financial condition.

**Critical Accounting Policies**

         The notes to the consolidated financial statements in Item 8 of this Form 10-K contain a summary of *MutualFirst'*s significantaccounting policies. Certain of these policies are important to the portrayal of *MutualFirst'*s financial condition, since they require management to make difficult, complex or subjectivejudgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include determining the allowance for loan losses, thevaluation of foreclosed assets, mortgage servicing rights and real estate held for development and the valuation of intangible assets.

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

Allowance for Loan Losses

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

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Foreclosed Assets

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

Mortgage Servicing Rights

         Mortgage servicing rights ("MSRs") associated with loans originated and sold, where servicing is retained, are capitalized and included inother intangible assets in the consolidated balance sheet. The value of the capitalized servicing rights represents the present value of the future servicing fees arising from the right to serviceloans in the portfolio. Critical accounting policies for MSRs relate to the initial valuation and subsequent impairment tests. The methodology used to determine the valuation of MSRs requires thedevelopment and use of a number of estimates, including anticipated principal amortization and prepayments of that principal balance. Events that may significantly affect the estimates used arechanges in interest rates, mortgage loan prepayment speeds and the payment performance of the underlying loans. The carrying value of the MSRs is periodically reviewed for impairment based on adetermination of fair value. For purposes of measuring impairment, the servicing rights are compared to a valuation prepared based on a discounted cash flow methodology, utilizing current prepaymentspeeds and discount rates. Impairment, if any, is recognized through a valuation allowance and is recorded as amortization of intangible assets.

Intangible Assets

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

**Impact of Inflation**

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

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

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

**Item 7A. Quantitative and Qualitative Disclosures About Market Risk**

         **Asset and Liability Management and Market Risk**

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

         ***How We Measure Our Risk of Interest Rate Changes.*** As part of our attempt to manage our exposure to changes ininterest rates and comply with applicable regulations, we monitor our interest rate risk. In monitoring interest rate risk, we continually analyze and manage assets and liabilities based on theirpayment streams and interest rates, the timing of their maturities, and their sensitivity to actual or potential changes in market interest rates.

         In order to minimize the potential for adverse effects of material and prolonged changes in interest rates on our results of operations, weadopted asset and liability management policies to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities. Mutual Federal's Board of Directorssets and recommends asset and liability policies, which are implemented by the asset and liability management committee. The Asset and Liability Management Committee is chaired by the chief financialofficer and is comprised of members of our senior management. The purpose of the Asset and Liability Management Committee is to communicate, coordinate and control asset/liability management issuesconsistent with our business plan and board-approved policies. This committee establishes and monitors the volume and mix of assets and funding sources taking into account relative costs and spreads,interest rate sensitivity and liquidity needs. The objectives are to manage assets and funding sources consistent with liquidity, capital adequacy, growth, risk and profitability goals. The Asset andLiability Management Committee generally meets monthly to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position,anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to a net present value of portfolio equity analysis andincome simulations. At each meeting, the Asset and Liability Management Committee recommends appropriate strategy changes based on this review. The chief financial officer is responsible forreviewing and reporting on the effects of the policy implementations and strategies to the Board of Directors, at least quarterly.

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

- Originate and purchase adjustable rate mortgage loans and commercial business loans,
- Originate shorter-term consumer loans,
- Manage our deposits to establish stable deposit relationships,
- Acquire longer-term borrowings at fixed rates, when appropriate, to offset the negative impact of longer-term fixed rate loans in our loan portfolio, and
- Limit the percentage of long-term fixed-rate loans in our portfolio.

        Depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitivefactors, the Asset and Liability Management Committee may increase our interest rate risk position somewhat in order to maintain our net interest margin. We intend to increase our emphasis on theorigination of relatively short-term and/or adjustable rate loans. In addition, in an effort to avoid an increase in the percentage of long-term fixed-rate loans in our portfolio, in 2004, we sold$40.8 million of fixed rate, one-to four- family mortgage loans with a term to maturity of over 20 years in the secondary market.

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

         Mutual Federal employs a financial model that provides the following tables. The tables present the change in our net portfolio value atDecember 31, 2004 and 2003 that would occur upon an immediate and sustained change in market interest rates of 100 to 300 basis points as required by the Office of Thrift Supervision, and do not giveany effect to actions that management might take to counteract that change. The changes in net portfolio value under all rate changes shown were within board of director-approved guidelines.

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**December 31, 2004**

**Net Portfolio Value**

| Changes                                       |          |          |          | NPV as % of PV of Assets |
|-----------------------------------------------|----------|----------|----------|--------------------------|
| In Rates                                      | $ Amount | $ Change | % Change | NPV Ratio                | Change |
|                                               |          |          |          |                          |  |
| +300 bp                                       | 71,974   | -30,320  | -30%     | 9.21%                    | -296 bp |
| +200 bp                                       | 83,145   | -19,149  | -19%     | 10.38%                   | -178 bp |
| +100 bp                                       | 93,777   | -8,517   | -8%      | 11.42%                   | -74 bp |
| 0 bp                                          | 102,294  |          |          | 12.16%                   |  |
| -100 bp                                       | 103,856  | 1,562    | 2%       | 12.13%                   | -3 bp |
| -200 bp                                       | n/m(1)   | n/m(1)   | n/m(1)   | n/m(1)                   | n/m(1) |
| -300 bp                                       | n/m(1)   | n/m(1)   | n/m(1)   | n/m(1)                   | n/m(1) |
|                                          |
| **December 31, 2003**
**Net Portfolio Value** |

| Changes  |          |          |          | NPV as % of PV of Assets |
|----------|----------|----------|----------|--------------------------|
| In Rates | $ Amount | $ Change | % Change | NPV Ratio                | Change |
| +300 bp  | 61,428   | -30,407  | -33%     | 8.05%                    | -305 bp |
| +200 bp  | 73,401   | -18,434  | -20%     | 9.36%                    | -174 bp |
| +100 bp  | 83,591   | -8,244   | -9%      | 10.37%                   | -73 bp |
| 0 bp     | 91,835   |          |          | 11.10%                   |  |
| -100 bp  | 90,618   | 1,217    | -1%      | 10.76%                   | -34 bp |
| -200 bp  | n/m(1)   | n/m(1)   | n/m(1)   | n/m(1)                   | n/m(1) |
| -300 bp  | n/m(1)   | n/m(1)   | n/m(1)   | n/m(1)                   | n/m(1) |

_______________(1) Not meaningful because some market rates would compute to a zero rate or less.

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

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

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**Item 8. Financial Statements and Supplementary Data**

***MutualFirst* Financial, Inc.**

Accountants' Report and Consolidated Financial Statements

December 31, 2004, 2003 and 2002

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**Report of Independent Registered Public Accounting Firm**

Audit Committee, Board of Directors and Stockholders*MutualFirst* Financial, Inc.Muncie, Indiana

We have audited the accompanying consolidated balance sheets of *MutualFirst* Financial, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income,stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of *MutualFirst* Financial, Inc. as of December 31,2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally acceptedin the United States of America.

/s/ BKD, LLP

Indianapolis, IndianaFebruary 4, 2005, except for Note 22     as to which the date is March 3, 2005

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***MutualFirst* Financial, Inc.Consolidated Balance SheetsDecember 31, 2004 and 2003**

|                                                                                                                                                   | **2004**           | **2003**     |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|--------------|
| **Assets**                                                                                                                                        |                    |              |
|                                                                                                                                                   |                    |              |
|      Cash and due from banks                                                                                             | $19,275,332        | $21,073,754  |
|      Interest-bearing demand deposits                                                                                    | 468,044            | 1,994,032    |
|           Cash and cash equivalents                                                             | 19,743,376         | 23,067,786   |
|      Investment securities available for sale                                                                            | 39,408,978         | 33,471,986   |
|      Loans held for sale                                                                                                 | 2,913,150          | 1,975,277    |
|      Loans, net of allowance for loan losses of $6,866,910 and $6,779,218                                                | 713,021,688        | 703,980,796  |
|      Premises and equipment                                                                                              | 12,191,117         | 10,070,804   |
|      Federal Home Loan Bank stock                                                                                        | 7,957,700          | 7,264,200    |
|      Investment in limited partnerships                                                                                  | 5,025,378          | 5,087,752    |
|      Deferred income tax benefit                                                                                         | 4,003,199          | 3,846,184    |
|      Cash value of life insurance                                                                                        | 27,090,357         | 26,140,357   |
|      Other assets                                                                                                        | 8,032,314          | 8,885,696    |
|                                                                                                                                                   |                    |              |
|           Total assets                                                                          | $839,387,257       | $823,790,838 |
|                                                                                                                                    |                    |              |
| **Liabilities and Stockholders' Equity**                                                                                                          |     |              |
|                                                                                                                                                   |                    |              |
|      **Liabilities**                                                                                                     |                    |              |
|           Deposits                                                                              |                    |              |
|                Noninterest-bearing                                     | $39,999,427        | $32,137,746  |
|                Interest-bearing                                        | 560,407,685        | 547,224,644  |
|                     Total deposits            | 600,407,112        | 579,362,390  |
|           Federal Home Loan Bank advances                                                       | 139,426,777        | 134,592,151  |
|           Notes payable                                                                         | 2,145,432          | 2,510,568    |
|           Other liabilities                                                                     | 9,547,793          | 9,805,597    |
|                     Total liabilities         | 751,527,114        | 726,270,706  |
|                                                                                                                                         |                    |              |
|      **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 - 4,708,318 and 5,293,155 shares | 47,084             | 52,932       |
|           Additional paid-in capital                                                            | 34,385,254         | 38,052,080   |
|           Retained earnings                                                                     | 56,826,053         | 63,409,374   |
|           Accumulated other comprehensive income (loss)                                         | (88,646)           | 233,738      |
|           Unearned benefit plan shares                                                          | (3,309,602)        | (4,227,992)  |
|                Total stockholders' equity                              | 87,860,143         | 97,520,132   |
|                Total liabilities and stockholders' equity              | $839,387,257       | $823,790,838 |

*See Notes to Consolidated Financial Statements*

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***MutualFirst* Financial, Inc.****Consolidated Statements of IncomeYears Ended December 31, 2004, 2003 and 2002**

|                                                                                                                                                                 | **2004**      | **2003**    | **2002**      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|-------------|---------------|
| **Interest and Dividend Income**                                                                                                                                |               |             |               |
|      Loans receivable                                                                                                                  | $42,839,649   | $44,880,960 | $48,246,747   |
|      Investment securities                                                                                                             | 1,196,295     | 1,130,134   | 1,593,708     |
|      Federal Home Loan Bank stock                                                                                                      | 334,544       | 360,153     | 423,963       |
|      Deposits with financial institutions                                                                                              | 29,460        | 70,820      | 175,042       |
|           Total interest and dividend income                                                                  | 44,399,948    | 46,442,067  | 50,439,460    |
|                                                                                                                                                            |               |             |               |
| **Interest Expense**                                                                                                                                            |               |             |               |
|      Deposits                                                                                                                          | 12,317,820    | 13,671,004  | 17,394,703    |
|      Federal Home Loan Bank advances                                                                                                   | 5,080,991     | 5,365,496   | 5,652,344     |
|      Other interest expense                                                                                                            | 76,849        | 62,424      | 71,528        |
|           Total interest expense                                                                              | 17,475,660    | 19,098,924  | 23,118,575    |
|                                                                                                                                                            |               |             |               |
| **Net Interest Income**                                                                                                                                         | 26,924,288    | 27,343,143  | 27,320,885    |
|      Provision for loan losses                                                                                                         | 1,556,500     | 1,450,000   | 1,712,483     |
| **Net Interest Income After Provision for Loan Losses**                                                                                                         | 25,367,788    | 25,893,143  | 25,608,402    |
|                                                                                                                                                                 |          |             |               |
| **Other Income**                                                                                                                                                |               |             |               |
|      Service fee income                                                                                                                | 3,193,229     | 2,926,705   | 2,784,744     |
|      Net realized gains (losses) on sales of available-for-sale           securities |  (2,817) |  6,979 |  (2,763) |
|      Commissions                                                                                                                       | 853,842       | 745,427     | 790,086       |
|      Equity in income (losses) of limited partnerships                                                                                 | 52,322        | (323,450)   | (516,509)     |
|      Net gains on sales of loans                                                                                                       | 729,897       | 1,356,593   | 1,368,033     |
|      Net servicing fees (expense)                                                                                                      | 122,596       | (382,620)   | 65,470        |
|      Increase in cash value of life insurance                                                                                          | 950,000       | 1,343,542   | 1,208,217     |
|      Other income                                                                                                                      | 324,340       | 301,843     | 250,658       |
|           Total other income                                                                                  | 6,223,409     | 5,975,019   | 5,947,936     |
|                                                                                                                                                                 |          |             |               |
| **Other Expenses**                                                                                                                                              |               |             |               |
|      Salaries and employee benefits                                                                                                    | 16,167,177    | 13,097,034  | 12,453,962    |
|      Net occupancy expenses                                                                                                            | 1,149,931     | 1,170,121   | 1,104,617     |
|      Equipment expenses                                                                                                                | 1,124,185     | 1,024,196   | 891,202       |
|      Data processing fees                                                                                                              | 630,312       | 606,531     | 760,475       |
|      Advertising and promotion                                                                                                         | 721,957       | 639,859     | 455,143       |
|      Automated teller machine expense                                                                                                  | 587,076       | 492,176     | 492,766       |
|      Professional fees                                                                                                                 | 750,144       | 605,095     | 489,412       |
|      Other expenses                                                                                                                    | 3,184,942     | 2,831,223   | 3,052,731     |
|           Total other expenses                                                                                | 24,315,724    | 20,466,235  | 19,700,308    |
|                                                                                                                                                                 |               |             |               |
| **Income Before Income Tax**                                                                                                                                    | 7,275,473     | 11,401,927  | 11,856,030    |
|      Income tax expense                                                                                                                | 1,753,450     | 3,340,415   | 3,376,500     |
|                                                                                                                                                                 |               |             |               |
| **Net Income**                                                                                                                                                  | $5,522,023    | $8,061,512  | $8,479,530    |
|                                                                                                                                                                 |               |             |               |
| **Earnings Per Share**                                                                                                                                          |               |             |               |
|      Basic                                                                                                                             | $1.19         | $1.64       | $1.55         |
|      Diluted                                                                                                                           | 1.16          | 1.59        | 1.51          |

*See Notes to Consolidated Financial Statements*

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***MutualFirst* Financial, Inc.****Consolidated Statements of Stockholders' EquityYears Ended December 31, 2004, 2003 and 2002**

|                                                                                                                                                                                                                               |            |              | **Accumulated** |                   |              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|-----------------|-------------------|--------------|
|                                                                                                                                                                                                                               |            |              | **Other**       | **Unearned**      |              |
|                                                                                                                                                                                                                               |            |              |                 | **Comprehensive** | **Benefit**  |  |
|                                                                                                                                                                                                                               | **Common** | **Paid-in**  | **Retained**    | **Income**        | **Plan**     |  |
|                                                                                                                                                                                                                               | **Stock**  | **Capital**  | **Earnings**    | **(Loss)**        | **Shares**   | **Total** |
|                                                                                                                                                                                                                               |            |              |                 |                   |              |  |
| Balances, January 1, 2002                                                                                                                                                                                                     | $66,938    | $59,575,884  | $55,195,694     | $356,009          | $(5,450,347) | $109,744,178 |
|      Comprehensive income                                                                                                                                                                            |            |              |                 |                   |              |  |
|           Net income                                                                                                                                                        |            |              | 8,479,530       |                   |              | 8,479,530 |
|           Other comprehensive income, net of               tax - unrealized gains on securities  |            |              |                 | 108,443           |              | 108,443 |
|      Comprehensive income                                                                                                                                                                            |            |              |                 |                   |              | 8,587,973 |
|      Cash dividends ($.37 per share)                                                                                                                                                                 |            |              | (1,895,529)     |                   |              | (1,895,529) |
|      Exercise of stock options                                                                                                                                                                       | 33         | 39,767       |                 |                   |              | 39,800 |
|      Stock repurchased                                                                                                                                                                               | (11,740)   | (21,172,202) |                 |                   |              | (21,183,942) |
|      RRP shares earned                                                                                                                                                                               |            |              |                 |                   | 767,500      | 767,500 |
|      Tax benefit on RRP shares                                                                                                                                                                       |            | 72,120       |                 |                   |              | 72,120 |
|      ESOP shares earned                                                                                                                                                                              |            | 267,186      |                 |                   | 317,840      | 585,026 |
|                                                                                                                                                                                                                               |            |              |                 |                   |              |  |
| Balances, December 31, 2002                                                                                                                                                                                                   | 55,231     | 38,782,755   | 61,779,695      | 464,452           | (4,365,007)  | 96,717,126 |
|      Comprehensive income                                                                                                                                                                            |            |              |                 |                   |              |  |
|           Net income                                                                                                                                                        |            |              | 8,061,512       |                   |              | 8,061,512 |
|           Other comprehensive income, net of               tax - unrealized losses on securities |            |              |                 | (230,714)         |              | (230,714) |
|      Comprehensive income                                                                                                                                                                            |            |              |                 |                   |              | 7,830,798 |
|      Cash dividends ($.42 per share)                                                                                                                                                                 |            |              | (2,021,410)     |                   |              | (2,021,410) |
|      Exercise of stock options                                                                                                                                                                       | 719        | 973,638      |                 |                   |              | 974,357 |
|      Stock repurchased                                                                                                                                                                               | (3,264)    | (2,768,683)  | (4,410,423)     |                   |              | (7,182,370) |
|      RRP shares granted                                                                                                                                                                              | 246        | 630,579      |                 |                   | (630,825)    |  |
|      RRP shares earned                                                                                                                                                                               |            |              |                 |                   | 450,000      | 450,000 |
|      ESOP shares earned                                                                                                                                                                              |            | 433,791      |                 |                   | 317,840      | 751,631 |
|                                                                                                                                                                                                                               |            |              |                 |                   |              |  |
| Balances, December 31, 2003                                                                                                                                                                                                   | 52,932     | 38,052,080   | 63,409,374      | 233,738           | (4,227,992)  | 97,520,132 |
|      Comprehensive income                                                                                                                                                                            |            |              |                 |                   |              |  |
|           Net income                                                                                                                                                        |            |              | 5,522,023       |                   |              | 5,522,023 |
|           Other comprehensive income, net of               tax - unrealized losses on securities |            |              |                 | (322,384)         |              | (322,384) |
|      Comprehensive income                                                                                                                                                                            |            |              |                 |                   |              | 5,199,639 |
|      Cash dividends ($.47 per share)                                                                                                                                                                 |            |              | (2,149,714)     |                   |              | (2,149,714) |
|      Exercise of stock options                                                                                                                                                                       | 382        | 553,156      |                 |                   |              | 553,538 |
|      Stock repurchased                                                                                                                                                                               | (6,230)    | (4,744,626)  | (9,955,630)     |                   |              | (14,706,486) |
|      RRP shares earned                                                                                                                                                                               |            |              |                 |                   | 600,550      | 600,550 |
|      Tax benefit on RRP shares                                                                                                                                                                       |            | 90,436       |                 |                   |              | 90,436 |
|      ESOP shares earned                                                                                                                                                                              |            | 434,208      |                 |                   | 317,840      | 752,048 |
|                                                                                                                                                                                                                               |            |              |                 |                   |              |  |
| Balances, December 31, 2004                                                                                                                                                                                                   | $47,084    | $34,385,254  | $56,826,053     | $(88,646)         | $(3,309,602) | $87,860,143 |

*See Notes to Consolidated Financial Statements*

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***MutualFirst* Financial, Inc.****Consolidated Statements of Cash FlowsYears Ended December 31, 2004, 2003 and 2002**

|                                                                                                                               | **2004**      | **2003**     | **2002**     |
|-------------------------------------------------------------------------------------------------------------------------------|---------------|--------------|--------------|
|                                                                                                                               |               |
| **Operating Activities**                                                                                                      |               |              |              |
|      Net income                                                                                      | $5,522,023    | $8,061,512   | $8,479,530   |
|      Items not requiring (providing) cash                                                            |               |              |              |
|           Provision for loan losses                                         | 1,556,500     | 1,450,000    | 1,712,483    |
|           ESOP shares earned                                                | 752,048       | 751,631      | 585,026      |
|           RRP shares earned                                                 | 600,550       | 450,000      | 767,500      |
|           Depreciation and amortization                                     | 2,786,288     | 2,476,012    | 2,790,952    |
|           Deferred income tax                                               | 117,298       | 417,241      | 363,338      |
|           Loans originated for sale                                         | (25,613,232)  | (45,647,544) | (55,029,628) |
|           Proceeds from sales of loans held for sale                        | 40,820,936    | 52,364,678   | 63,481,603   |
|           Gains on sales of loans held for sale                             | (729,897)     | (1,356,593)  | (1,368,033)  |
|      Change in                                                                                       |               |              |              |
|           Interest receivable                                               | 155,291       | 7,153        | 495,559      |
|           Other assets                                                      | (193,052)     | 243,754      | (175,615)    |
|           Interest payable                                                  | 173,530       | 164,490      | (343,963)    |
|           Other liabilities                                                 | (561,368)     | (902,369)    | 940,074      |
|           Cash value of life insurance                                      | (950,000)     | (701,049)    | (1,208,217)  |
|      Other adjustments                                                                               | 650,509       | 1,265,262    | 642,353      |
|           Net cash provided by operating activities                         | 25,087,424    | 19,044,178   | 22,132,962   |
| **Investing Activities**                                                                                                      |               |              |              |
|      Purchases of securities available for sale                                                      | (20,897,969)  | (15,603,309) | (30,441,236) |
|      Proceeds from maturities and paydowns of securities available for sale                          | 10,676,145    | 11,451,638   | 14,800,015   |
|      Proceeds from sales of securities available for sale                                            | 3,472,490     | 12,172,309   | 5,000,000    |
|      Net change in loans                                                                             | (28,416,263)  | (67,000,877) | (13,717,276) |
|      Purchases of premises and equipment                                                             | (3,182,626)   | (1,894,557)  | (1,394,578)  |
|      Proceeds from real estate owned sales                                                           | 967,264       | 1,733,353    | 1,081,651    |
|      Other investing activities                                                                      | (252,429)     | (21,979)     | (129,524)    |
|           Net cash used in investing activities                             | (37,633,388)  | (59,163,422) | (24,800,948) |
| **Financing Activities**                                                                                                      |               |              |              |
|      Net change in                                                                                   |               |              |              |
|           Noninterest-bearing, interest-bearing demand and savings deposits | 18,489,158    | 7,062,223    | 1,325,377    |
|           Certificates of deposits                                          | 2,555,564     | 21,936,224   | 10,160,395   |
|      Repayment of note payable                                                                       | (427,560)     | (435,487)    | (437,470)    |
|      Proceeds from FHLB advances                                                                     | 253,700,000   | 105,000,000  | 46,280,000   |
|      Repayment of FHLB advances                                                                      | (248,922,980) | (85,880,184) | (38,429,745) |
|      Net change in advances by borrowers for taxes and insurance                                     | 130,034       | 113,720      | (128,616)    |
|      Stock repurchased                                                                               | (14,706,486)  | (7,182,370)  | (21,183,942) |
|      Proceeds from stock options exercised                                                           | 553,538       | 974,357      | 39,800       |
|      Cash dividends                                                                                  | (2,149,714)   | (2,021,410)  | (1,895,529)  |
|           Net cash provided by (used in) financing activities               | 9,221,554     | 39,567,073   | (4,269,730)  |
|                                                                                                                               |               |              |              |
| **Net Change in Cash and Cash Equivalents**                                                                                   | (3,324,410)   | (552,171)    | (6,937,716)  |
|                                                                                                                               |               |              |              |
| **Cash and Cash Equivalents, Beginning of Year**                                                                              | 23,067,786    | 23,619,957   | 30,557,673   |
|                                                                                                                               |               |              |              |
| **Cash and Cash Equivalents, End of Year**                                                                                    | $19,743,376   | $23,067,786  | $23,619,957  |
|                                                                                                                               |               |              |              |
| **Additional Cash Flows Information**                                                                                         |               |              |              |
|      Interest paid                                                                                   | $17,302,130   | $19,263,414  | $23,462,538  |
|      Income tax paid                                                                                 | 1,672,000     | 3,191,271    | 3,089,069    |
|      Transfers from loans to foreclosed real estate                                                  | 895,599       | 1,220,234    | 1,715,157    |
|      Loans transferred to held for sale                                                              | 15,293,086    | --           | 15,459,187   |
|      Loans transferred from held for sale                                                            | --            | --           | 11,559,158   |
|      Mortgage servicing rights capitalized                                                           | 408,208       | 514,893      | 524,534      |

*See Notes to Consolidated Financial Statements*

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***MutualFirst* Financial, Inc.****Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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

         The accounting and reporting policies of *MutualFirst* Financial, Inc. (Company) and its wholly owned subsidiary, Mutual FederalSavings Bank (Bank) and the Bank's wholly owned subsidiary, First MFSB Corporation, conform to accounting principles generally accepted in the United States of America and reporting practicesfollowed 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 requiresmanagement 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 andthe 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 thriftcharter 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. TheBank's loans are generally secured by specific items of collateral including real property, consumer assets and business assets. First MFSB Corporation sells various insurance products.

         **Consolidation** - The consolidated financial statements include the accounts of the Company, the Bank, and the Bank'ssubsidiary, 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 cashequivalents.

         **Investment Securities** - Securities available for sale are carried at fair value with unrealized gains and losses reportedseparately 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 gainsand losses are recorded as net security gains (losses). Gains and losses on sales of securities are determined on the specific-identification method.

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

         **Loans held for sale** are carried at the lower of aggregate cost or market. Market is determined using the aggregate method.Net unrealized losses, if any, are recognized through a valuation allowance by charges to income based on the difference between estimated sales proceeds and aggregate cost.

         **Loans** are carried at the principal amount outstanding. A loan is impaired when, based on current information or events, it isprobable 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 exceeding90 days are not considered impaired. Certain nonaccrual and substantially delinquent loans may be considered to be impaired. The Company considers its investment in one-to-four familyresidential 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 isdiscontinued, 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 anddirect 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 theloan 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 ofthe 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 cashflows, 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 operatingresults. 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 significantchanges in the economic environment and market conditions. Management believes that as of December 31, 2004, the allowance for loan losses is adequate based on information currently available. Aworsening 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 foradditional loss reserves.

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

         **Premises and equipment** are carried at cost net of accumulated depreciation. Depreciation is computed using the straight-linemethod 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 arecapitalized. 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.

         **Mortgage servicing rights** on originated loans that have been sold are capitalized by allocating the total cost of themortgage loans between the mortgage servicing rights and the loans based on their relative fair values. Capitalized servicing rights are amortized in proportion to and over the period of estimatedservicing revenues. Impairment of mortgage servicing rights is based on the fair value of those rights. Fair values are estimated using discounted cash flows based on a current market interest rate.For purposes of measuring impairment, the rights are stratified based on the predominant risk characteristics of the underlying loans. The predominant characteristic currently used for stratificationis type of loan. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights for a stratum exceed their fair values.

         **Investment in limited partnerships** is recorded primarily on the equity method of accounting. Losses due to impairment arerecorded 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 accruedwhen earned.

         **Income tax** in the consolidated statements of income includes deferred income tax provisions or benefits for all significanttemporary 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 eachyear. 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 2003 and 2002 consolidated financial statements have been made to conform to the2004 presentation.

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

         **Stock Options** are accounted for under the recognition and measurement principals of APB Opinion No. 25, *Accounting forStock 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 tothe 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 provisionsof Statement of Financial Accounting Standards No. 123, *Accounting for Stock-Based Compensation*, to stock-based employee compensation.

|                                                                                                                                       | **2004** | **2003** | **2002** |
|---------------------------------------------------------------------------------------------------------------------------------------|----------|----------|----------|
| Net income, as reported                                                                                                               | $5,522   | $8,062   | $8,480   |
| Less: Stock-based employee compensation cost determined     under the fair value method, net of income taxes | (104)    | (226)    | (605)    |
| Pro forma net income                                                                                                                  | $5,418   | $7,836   | $7,875   |
| Earnings per share                                                                                                                    |          |          |          |
|      Basic - as reported                                                                                     | $1.19    | $1.64    | $1.55    |
|      Basic - pro forma                                                                                       | 1.17     | 1.59     | 1.44     |
|      Diluted - as reported                                                                                   | 1.16     | 1.59     | 1.51     |
|      Diluted - pro forma                                                                                     | 1.14     | 1.54     | 1.41     |

         In December 2004, the Financial Accounting Standards Board (FASB) issued an amendment to SFAS 123 (SFAS 123R), which eliminates the ability toaccount for share-based compensation transactions using Accounting Principles Board Opinion No. 25 and generally requires that such transactions be accounted for using a fair value-based method. SFAS123R will be effective for the Company beginning July 1, 2005. SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after thatdate. The cumulative effect of initially applying this Statement, if any, is recognized as of the required effective date.

         As of the required effective date, the Company will apply SFAS 123R using either the modified version of prospective application or themodified version of retrospective application. Under prospective transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards forwhich the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS 123 for either recognition or proforma disclosures. For periods beforethe required effective date, a company may elect to apply a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent withthe pro forma disclosures required for those periods by SFAS 123.

         The Company is currently evaluating the effect of the recognition and measurement provisions of SFAS 123R but believes the adoption of SFAS123R will not result in a material impact on the Company's results of operations or financial condition.

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 2: Restriction on Cash**

         The Bank is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve required atDecember 31, 2004 was $7,662,000.

**Note 3: Investment Securities Available for Sale**

|                                                                                         | **2004**           |
|-----------------------------------------------------------------------------------------|--------------------|
|                                                                                         | **Amortized Cost** | **GrossUnrealizedGains** | **GrossUnrealizedLosses** | **FairValue** |
| Mortgage-backed securities                                                              | $2,661             | $80 | $(16) | $2,725 |
| Collateralized mortgage obligations                                                     | 8,614              | 16 | (31) | 8,599 |
| Federal agencies                                                                        | 2,002              | -- | (23) | 1,979 |
| Small Business Administration                                                           | 178                | -- | (2) | 176 |
| Corporate obligations                                                                   | 11,103             | 57 | (34) | 11,126 |
| Marketable equity securities                                                            | 14,999             | -- | (195) | 14,804 |
|           Total investment securities | $39,557            | $153 | $(301) | $39,409 |

|                                                                                         | **2003**           |
|-----------------------------------------------------------------------------------------|--------------------|
|                                                                                         | **Amortized Cost** | **GrossUnrealized Gains** | **GrossUnrealized Losses** | **FairValue** |
| Mortgage-backed securities                                                              | $3,900             | $149 | $(5) | $4,044 |
| Collateralized mortgage obligations                                                     | 8,374              | 83 | -- | 8,457 |
| Federal agencies                                                                        | 3,044              | 41 | -- | 3,085 |
| Small Business Administration                                                           | 214                | 1 | -- | 215 |
| Corporate obligations                                                                   | 9,756              | 206 | -- | 9,962 |
| Marketable equity securities                                                            | 7,645              | -- | (86) | 7,559 |
| Municipal obligation                                                                    | 150                | -- | -- | 150 |
|           Total investment securities | $33,083            | $480 | $(91) | $33,472 |

 

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

         Certain investments in debt and marketable equity securities are reported in the financial statements at an amount less than their historicalcost. Total fair value of these investments at December 31, 2004 and 2003, was $28,166,000 and $8,247,000, which is approximately 71 and 25 percent of the Company's available-for-sale investmentportfolio at those dates. These declines primarily resulted from recent increases in market interest rates.

         Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and informationobtained from regulatory filings, management believes the declines in fair value for these securities are temporary.

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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

         The following table shows our investments' gross unrealized losses and fair value, aggregated by investment category and length of time thatindividual securities have been in a continuous unrealized loss position at December 31, 2004 and 2003:

|                                                                    | **2004**                |
|--------------------------------------------------------------------|-------------------------|
|                                                                    | **Less than 12 Months** | **12 Months or More** | **Total** |
| **Description ofSecurities**                                       | **FairValue**           | **UnrealizedLosses** | **FairValue** | **UnrealizedLosses** | **FairValue** | **UnrealizedLosses** |
| Mortgage-backed securities                                         | $127                    | $(3) | $341 | $(13) | $468 | $(16) |
| Collateralized mortgage obligations                                | 3,998                   | (31) | -- | -- | 3,998 | (31) |
| Federal agencies                                                   | 1,979                   | (23) | -- | -- | 1,979 | (23) |
| Small Business Administration                                      | 176                     | (2) | -- | -- | 176 | (2) |
| Corporate obligations                                              | 7,648                   | (34) | -- | -- | 7,648 | (34) |
| Marketable equity securities                                       | 6,926                   | (76) | 6,971 | (119) | 13,897 | (195) |
| Total temporarily     impaired securities |  $20,854           |  $(169) |  $7,312 |  $(132) |  $28,166 |  $(301) |

|                                       | **2003**                |
|---------------------------------------|-------------------------|
|                                       | **Less than 12 Months** | **12 Months or More** | **Total** |
| **Description ofSecurities**          | **FairValue**           | **UnrealizedLosses** | **FairValue** | **UnrealizedLosses** | **FairValue** | **UnrealizedLosses** |
| Mortgage-backed securities            | $732                    | $(5) | $-- | $-- | $732 | $(5) |
| Marketable equity securities          | 6,200                   | (38) | 1,315 | (48) | 7,515 | (86) |
| Total temporarily impaired securities | $6,932                  | $(43) | $1,315 | $(48) | $8,247 | $(91) |

         The amortized cost and fair value of securities available for sale at December 31, 2004, 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.

|                                     | **2004**          |
|-------------------------------------|-------------------|
|                                     | **AmortizedCost** | **FairValue** |
| Within one year                     | $3,561            | $3,554 |
| One to five years                   | 5,533             | 5,540 |
| After ten years                     | 4,011             | 4,011 |
|                                     | 13,105            | 13,105 |
| Mortgage-backed securities          | 2,661             | 2,725 |
| Collateralized mortgage obligations | 8,614             | 8,599 |
| Small Business Administration       | 178               | 176 |
| Marketable equity securities        | 14,999            | 14,804 |
| Totals                              | $39,557           | $39,409 |

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

         The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $14,389,000 at December 31, 2004and $7,504,000 at December 31, 2003.

         Proceeds from sales of securities available for sale during 2004, 2003 and 2002 were $3,472,000, $12,172,000 and $5,000,000. Gross gains of$30,000 and $3,000 in 2003 and 2002, and gross losses of $3,000, $23,000 and $6,000 in 2004, 2003 and 2002 were recognized on those sales.

**Note 4: Loans and Allowance**

|                                                                                          | **2004** | **2003** |
|------------------------------------------------------------------------------------------|----------|----------|
| Loans                                                                                    |          |          |
|      Real estate loans                                          |          |          |
|           One-to-four family           | $382,764 | $391,476 |
|           Multi family                 | 4,657    | 5,353    |
|           Commercial                   | 68,067   | 65,430   |
|           Construction and development | 20,745   | 17,860   |
|                                                                                          | 476,233  | 480,119  |
|      Consumer loans                                             |          |          |
|           Auto                         | 39,475   | 40,497   |
|           Home equity                  | 29,464   | 25,401   |
|           Home improvement             | 23,289   | 20,924   |
|           Mobile home                  | 2,879    | 4,108    |
|           Recreational vehicles        | 58,643   | 58,222   |
|           Boats                        | 38,382   | 38,096   |
|           Other                        | 3,327    | 3,443    |
|                                                                                          | 195,459  | 190,691  |
|      Commercial business loans                                  | 53,620   | 44,362   |
|           Total loans                  | 725,312  | 715,172  |
|      Undisbursed loans in process                               | (9,237)  | (8,160)  |
|      Unamortized deferred loan costs, net                       | 3,814    | 3,748    |
|      Allowance for loan losses                                  | (6,867)  | (6,779)  |
|           Net loans                    | $713,022 | $703,981 |

|                                                     | **2004** | **2003** | **2002** |
|-----------------------------------------------------|----------|----------|----------|
| Allowance for loan losses                           |          |          |          |
|      Balances, January 1   | $6,779   | $6,286   | $5,449   |
|      Provision for losses  | 1,557    | 1,450    | 1,713    |
|      Recoveries on loans   | 523      | 404      | 939      |
|      Loans charged off     | (1,992)  | (1,361)  | (1,815)  |
|      Balances, December 31 | $6,867   | $6,779   | $6,286   |

          At December 31, 2004 and 2003, accruing loans delinquent 90 days or more totaled $119,000 and $10,000. Non-accruing loans at December31, 2004 and 2003 were $3,985,000 and $3,270,000.

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

         Information on impaired loans is summarized below.

|                                                                                                                                            | **2004** | **2003** |
|--------------------------------------------------------------------------------------------------------------------------------------------|----------|----------|
| Impaired loans with an allowance                                                                                                           | $4,064   | $2,089   |
| Impaired loans for which the discounted cash flows or     collateral value exceeds the carrying value of the loan | ---      | ---      |
| Total impaired loans                                                                                                                       | $4,064   | $2,089   |
| Allowance for impaired loans included in the Company's     allowance for loan losses                              | $828     | $151     |

 

|                                                                                   | **2004** | **2003** | **2002** |
|-----------------------------------------------------------------------------------|----------|----------|----------|
| Average balance of impaired loans                                                 | $4,205   | $2,942   | $3,821   |
| Interest income recognized on impaired loans                                      | 131      | 62       | 24       |
| Interest income recognized on impaired loans -     cash basis | 47       | 22       | 8        |

**Note 5: Premises and Equipment**

|                                                                         | **2004** | **2003** |
|-------------------------------------------------------------------------|----------|----------|
| Cost                                                                    |          |          |
|      Land                                      | $3,334   | $3,066   |
|      Buildings and land improvements           | 11,119   | 9,396    |
|      Equipment                                 | 9,763    | 8,571    |
|           Total cost  | 24,216   | 21,033   |
|      Accumulated depreciation and amortization | (12,025) | (10,962) |
|           Net         | $12,191  | $10,071  |

**Note 6: Investment In Limited Partnerships**
|                                                          | **2004** | **2003** |
|----------------------------------------------------------|----------|----------|
| Pedcor Investments 1988-V (98.97 percent ownership)      | $323     | $364     |
| Pedcor Investments 1990-XI (19.79 percent ownership)     | 28       | 40       |
| Pedcor Investments 1990-XIII (99.00 percent ownership)   | 765      | 725      |
| Pedcor Investments 1997-XXVIII (99.00 percent ownership) | 2,758    | 2,800    |
| Pedcor Investments 1997-XXIX (99.00 percent ownership)   | 696      | 659      |
| Pedcor Investments 2001-LI (9.94 percent ownership)      | 455      | 500      |
|                                                          | $5,025   | $5,088   |

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

         The limited partnerships build, own and operate apartment complexes. The Company records its equity in the net income or loss of the limitedpartnerships based on the Company's interest in the partnerships. The Company recorded income from these limited partnerships of $52,000 in 2004 and losses of $323,000 and $517,000 for 2003 and 2002.In addition, the Company has recorded the benefit of low income housing credits of $800,000, $753,000 and $843,000 for 2004, 2003 and 2002. Combined financial statements for the limited partnershipsrecorded under the equity method of accounting are as follows:

|                                                                                                                                  | **2004** | **2003** |
|----------------------------------------------------------------------------------------------------------------------------------|----------|----------|
| Combined condensed balance sheets                                                                                                |          |          |
|      Assets                                                                                             |          |          |
|           Cash                                                                 | $150     | $154     |
|           Land and property                                                    | 35,129   | 36,128   |
|           Other assets                                                         | 1,174    | 1,231    |
|                Total assets                           | $36,453  | $37,513  |
|      Liabilities                                                                                        |          |          |
|           Notes payable                                                        | $33,875  | $34,711  |
|           Other liabilities                                                    | 1,347    | 1,240    |
|                Total liabilities                      | 35,222   | 35,951   |
|      Partners' equity (deficit)                                                                         |          |          |
|           General partners                                                     | (2,931)  | (2,487)  |
|           Limited partners                                                     | 4,162    | 4,049    |
|                Total partners' equity                 | 1,231    | 1,562    |
|                Total liabilities and partners' equity | $36,453  | $37,513  |

|                                             | **2004** | **2003** | **2002** |
|---------------------------------------------|----------|----------|----------|
| Combined condensed statements of operations |          |          |          |
| Total revenue                               | $4,349   | $3,695   | $4,369   |
| Total expenses                              | (5,014)  | (4,129)  | (4,882)  |
| Net loss                                    | $(665)   | $(434)   | $(513)   |

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 7: Deposits**

|                                                          | **2004** | **2003** |
|----------------------------------------------------------|----------|----------|
| Noninterest-bearing demand                               | $39,999  | $32,138  |
| Interest-bearing demand                                  | 58,440   | 59,809   |
| Savings                                                  | 61,629   | 57,785   |
| Money market savings                                     | 54,704   | 48,750   |
| Certificates and other time deposits of $100,000 or more | 121,871  | 109,008  |
| Other certificates                                       | 263,764  | 271,872  |
| Total deposits                                           | $600,407 | $579,362 |

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

|      2005 | $239,040 |
|------------------------------------|----------|
|      2006 | 69,224   |
|      2007 | 54,944   |
|      2008 | 10,092   |
|      2009 | 12,335   |
|                                    | $385,635 |

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

| **Maturities Years Ending December 31** |
|-----------------------------------------|
| 2005                                    | $63,252 |
| 2006                                    | 28,932 |
| 2007                                    | 12,665 |
| 2008                                    | 13,112 |
| 2009                                    | 1,655 |
| Thereafter                              | 19,811 |
|                                         | $139,427 |

         At December 31, 2004, the Company has pledged $389,517,000 in qualifying first mortgage loans and investment securities as collateral foradvances and outstanding letters of credit. Advances, at interest rates from 1.38 to 7.33 percent at December 31, 2004, are subject to restrictions or penalties in the event of prepayment.

**Note 9: Notes Payable**

         The Bank has a noninterest-bearing, unsecured term note payable to Pedcor Investments 1997-XXVIII, L.P. of $1,461,000 and $1,523,000 atDecember 31, 2004 and 2003 payable in semiannual installments through January 1, 2010. At December 31, 2004 and 2003, the Bank was obligated under an irrevocable direct pay letter ofcredit 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.

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

         The Bank also has a noninterest-bearing, unsecured term note payable to Pedcor Investments 1997-XXIX, LP. The note, which is payable in annualinstallments through August 15, 2008, had a balance of $684,000 and $988,000 at December 31, 2004 and 2003.

| **Maturities Years Ending December 31** |        |
|-----------------------------------------|--------|
| 2005                                    | $362   |
| 2006                                    | 357    |
| 2007                                    | 371    |
| 2008                                    | 413    |
| 2009                                    | 416    |
| Thereafter                              | 226    |
|                                         | $2,145 |

**Note 10: Loan Servicing**

         Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of these loansconsist of the following:

|                        | **2004** | **2003** | **2002** |
|------------------------|----------|----------|----------|
| Loans serviced for     |          |          |          |
| Freddie Mac            | $104,733 | $90,616  | $89,432  |
| Fannie Mae             | 5,530    | 7,712    | 12,343   |
| Federal Home Loan Bank | 23,852   | 17,307   | 12,081   |
| Other investors        | 7,611    | 12,327   | 14,680   |
|                        | $141,726 | $127,962 | $128,536 |

         The aggregate fair value of capitalized mortgage servicing rights is based on comparable market values and expected cash flows, withimpairment assessed based on portfolio characteristics including product type, investor type, and interest rates.

|                                  | **2004** | **2003** | **2002** |
|----------------------------------|----------|----------|----------|
| Mortgage Servicing Rights        |          |          |          |
| Balances, January 1              | $1,333   | $1,193   | $879     |
| Servicing rights capitalized     | 408      | 515      | 524      |
| Amortization of servicing rights | (366)    | (375)    | (210)    |
|                                  | 1,375    | 1,333    | 1,193    |
| Valuation allowance              | (180)    | (320)    | --       |
| Balances, December 31            | $1,195   | $1,013   | $1,193   |

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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

Activity in the valuation allowance for mortgage servicing right was as follows:

|                            | **2004** | **2003** |
|----------------------------|----------|----------|
| Balance, beginning of year | $320     | $--      |
| Additions                  | --       | 320      |
| Reductions                 | (140)    | --       |
| Balances, end of year      | $180     | $320     |

*No valuation allowance was necessary at December 31, 2002.

**Note 11: Income Tax**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | **2004** | **2003** | **2002** |
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| Income tax expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |          |          |          |
| Currently payableFederal$1,148$2,090$2,124State488833889DeferredFederal87439411State30(22)(48)Total income tax expense$1,753$3,340$3,376Reconciliation of federal statutory to actual tax expenseFederal statutory income tax at 34%$2,474$3,877$4,031Effect of state income taxes342535555Low income housing credits(800)(753)(843)Tax-exempt income(363)(492)(439)Other10017372Actual tax expense$1,753$3,340$3,376Effective tax rate24.1%29.3%28.5% 73NEXT PAGE
***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

The components of the deferred asset included on the balance sheets are as follows:
**2004****2003****Assets**       Unrealized loss on securities available for sale$59$--       Allowance for loan losses2,8582,707       Deferred compensation2,3892,264       Charitable contribution carryover--188       Depreciation and amortization--136       Business tax and AMT credit carryovers885515       Other613143              Total assets6,8045,953**Liabilities**       FHLB stock(463)(322)       State income tax(219)(232)       Loan fees(378)(697)       Investments in limited partnerships(1,229)(279)       Unrealized gain on securities available for sale--(155)       Mortgage servicing rights(497)(422)              Total liabilities(2,786)(2,107)$4,018$3,846 
          The Company has unused business income tax credits of $712,000 that expire in 2017. In addition, the Company has an AMT credit carryoverof $173,000 with an unlimited carryover period.
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***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

          Retained earnings include approximately $14,743,000 for which no deferred income tax liability has been recognized. This amountrepresents 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 oradjustments 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 unrecordeddeferred income tax liability on the above amounts was approximately $5,013,000.

**Note 12: Other Comprehensive Income**
**Before-Tax Amount****2004TaxCredit****Net-of-Tax Amount**Unrealized losses on securities       Unrealized holding losses arising during the year$(537)$213$(324)       Less: reclassification adjustment for losses            realized in net income (3) 1 (2)       Net unrealized losses$(534)$212$(322) **Before-Tax Amount****2003TaxCredit****Net-of-Tax Amount**Unrealized losses on securities       Unrealized holding losses arising during the year$(343)$117$(226)       Less: reclassification adjustment for gains                realized in net income7(2)5       Net unrealized losses$(350)$119$(231) **Before-Tax Amount****2002TaxCredit****Net-of-Tax Amount**Unrealized losses on securities       Unrealized gains on securities       Unrealized holding gains arising during the year$176$(70)$106       Less: reclassification adjustment for losses               realized in net income(3)1(2)       Net unrealized gains$179$(71)$108 75NEXT PAGE
***MutualFirst* Financial, Inc.****Notes to Consolidated Financial Statements****December 31, 2004, 2003 and 2002**

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

**Note 13: Commitments and Contingent Liabilities**

         In the normal course of business there are outstanding commitments and contingent liabilities, such as commitments to extend credit andstandby 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 financialinstruments 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 makingsuch 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:
**2004****2003**Loan commitments$78,641$72,419Standby letters of credit7,2117,165
         Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in thecontract. 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 drawnupon, 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 collateralobtained, 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-producingcommercial 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 ofmanagement that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position of the Company.

**Note 14: Stockholders' Equity**

         The Company is not subject to any regulatory restrictions on the payment of dividends to its stockholders.
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***MutualFirst* Financial, Inc.****Notes to Consolidated Financial Statements****December 31, 2004, 2003 and 2002**

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

         Without prior approval, current regulations allow the Bank to pay dividends to the Company not exceeding retained net income for the currentyear plus the previous two calendar years. At December 31, 2004, the Bank had regulatory approval to pay dividends to the Company of an amount not to exceed $15,000,000.

**Note 15: Regulatory Capital**

         The Bank is subject to various regulatory capital requirements administered by the federal banking agencies and is assigned to a capitalcategory. 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 coreleverage 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 categoryassigned 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 ofa 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, 2004 and 2003, the Bank wascategorized as well capitalized and met all subject capital adequacy requirements. There are no conditions or events since December 31, 2004 that management believes have changed the Bank'sclassification.

         The Bank's actual and required capital amounts and ratios are as follows:
** Actual****Required forAdequate Capital****To Be WellCapitalized****Amount****Ratio****Amount****Ratio****Amount****Ratio****As of December 31, 2004**Total risk-based capital (to risk-weighted      assets)$90,59515.0%$48,4368.0%$60,54510.0%Tier 1 risk-based capital (to risk-weighted      assets)84,15313.9%24,2184.0%36,3276.0%Core capital (to adjusted total assets)84,15310.0%25,1213.0%41,8685.0%Core capital (to adjusted tangible assets)84,15310.0%16,7472.0%N/AN/ATangible capital (to adjusted total assets)84,15310.0%12,5601.5%N/AN/A**As of December 31, 2003**Total risk-based capital (to risk-weighted      assets)$99,63617.0%$46,9758.0%$58,71910.0%Tier 1 risk-based capital (to risk-weighted      assets)92,97915.8%23,4874.0%35,2316.0%Core capital (to adjusted total assets)92,97911.3%24,6383.0%41,0635.0%Core capital (to adjusted tangible assets)92,97911.3%16,4252.0%N/AN/ATangible capital (to adjusted total assets)92,97911.3%12,3191.5%N/AN/A 77NEXT PAGE
***MutualFirst* Financial, Inc.****Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 16: Employee Benefits**

          The Company has a retirement savings 401(k) plan in which substantially all employees may participate. The contributions arediscretionary and determined annually. In 2004, 2003 and 2002, the Company matched employees' contributions at the rate of 50 percent for the first $600 of participant contributions to the 401(k) andmade a contribution to the profit-sharing plan of 3 percent of qualified compensation. The Company's expense for the plan was $370,000, $225,000 and $297,000 for 2004, 2003 and 2002.

          The Company has a supplemental retirement plan and deferred compensation arrangements for the benefit of certain officers. The Companyalso 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 periodfollowing 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 thesevested benefits based on the present value of future payments. The Company's expense for the plan was $753,000, $776,000 and $695,000 for 2004, 2003 and 2002.

          The Company has an ESOP covering substantially all of its employees. At December 31, 2004, 2003 and 2002, the Company had 286,060,317,843 and 349,626 unearned ESOP shares with a fair value of $6,963,000, $7,981,000 and $6,916,000. Shares are released to participants proportionately as ESOP debt is repaid. Dividends on allocatedshares 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 thestock 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 2004, 2003 and 2002 was $752,000, $752,000and $585,000. The following table provides information on ESOP shares at December 31.
**2004****2003****2002**Allocated shares147,725115,94280,857Suspense shares286,060317,843349,626Committed-to-be released shares31,78331,78331,783           The Company has a Recognition and Retention Plan (RRP) for the award of up to 232,784 shares of the common stock of the Company todirectors and executive officers. Common stock awarded under the RRP vests ratably over a three or five-year period commencing with the date of the grants. Expense recognized on the vested sharestotaled approximately $601,000, $450,000 and $768,000 in 2004, 2003 and 2002. The unearned portion of these stock awards is presented as a reduction of stockholders' equity. 78NEXT PAGE
***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**

**Note 17: Stock Option Plan**

          Under the Company's stock option plan, which is accounted for in accordance with Accounting Principles Board Opinion (APB) No. 25, *Accounting for Stock Issued to Employees*, and related interpretations, the Company grants selected executives and other key employees and directors incentive and non-qualified stock optionawards 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 theCompany'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 ofthe 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. Theexercise price of the options, which have a 10 to 15 year life, may not be less than the market price of the Company's stock on the date of grant; therefore, no compensation expense will berecognized when the options are granted.

          The following is a summary of the status of the Company's stock option plan and changes in that plan for 2004, 2003 and 2002.
**2004****2003****2002****Options****Shares****Weighted-AverageExercisePrice****Shares****Weighted-AverageExercisePrice****Shares****Weighted-AverageExercisePrice**Outstanding, beginning of year528,389$16.03530,086$14.32535,714$14.30Granted----75,00025.66----Exercised(38,175)14.50(71,897)13.55(3,331)11.95Forfeited/expired(2,400)14.50(4,800)14.50(2,297)13.32Outstanding, end of year487,81416.15528,38916.03530,08614.32Options exercisable at year end354,414337,389286,619Weighted-average fair value of options granted during the year2.76 79NEXT PAGE
***MutualFirst* Financial, Inc.****Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

At December 31, 2004, certain information by exercise price for options outstanding and exercisable is as follows:
**ExercisePrice****NumberofShares****Weighted-AverageRemainingContractualLife****Number ofSharesExercisable**$12.3513,9122.6 years13,91214.50398,902   8.6 years340,502   25.6675,00011.4 years  -- 
          Although the Company has elected to follow APB No. 25, SFAS No. 123 requires pro forma disclosures of net income and earnings per shareas if the Company had accounted for its employee stock options under that statement (see Note 1). The fair value of each 2003 option grant was estimated on the grant date using an option-pricingmodel with the following assumptions:
Risk-free interest rates2.29%Dividend yields1.76%Volatility factors of expected market price of common stock9.30%Weighted-average expected life of the options8 years80NEXT PAGE
***MutualFirst*****Financial, Inc.****Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 18. Earnings Per Share**

         Earnings per share were computed as follows:
**Income****2004Weighted-Average Shares****Per-ShareAmount****Basic Earnings Per Share**     Income available to common shareholders$5,5224,625,437$1.19**Effect of Dilutive Securities**     Stock options--146,599--**Diluted Earnings Per Share**     Income available to common stockholders and assumed            conversions $5,522 4,772,036 $1.16
 
**Income****2003Weighted-Average Shares****Per-ShareAmount****Basic Earnings Per Share**     Income available to common shareholders$8,0624,904,007$1.64**Effect of Dilutive Securities**     Stock options--180,507--**Diluted Earnings Per Share**     Income available to common stockholders and assumed            conversions $8,062 5,084,514 $1.59
 
**Income****2002Weighted-Average Shares****Per-ShareAmount****Basic Earnings Per Share**     Income available to common shareholders$8,4805,484,792$1.55**Effect of Dilutive Securities**     Stock options--113,378--**Diluted Earnings Per Share**     Income available to common stockholders and assumed            conversions $8,4805,598,170$1.51
          Options to purchase 75,000 shares of common stock at $25.66 per share were outstanding at December 31, 2004, but were not included inthe computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. Additionally, 24,584 shares not vested under the Recognition andRetention Plan have been excluded for similar reasons.
81NEXT PAGE
***MutualFirst*****Financial, Inc.****Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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

         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 beingoffered 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 amountpayable 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 beingoffered 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.
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         **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 sellmortgage loans, and standby letters of credit and are generally of a short-term nature. The fair values of such commitments are based on fees currently charged to enter into similar agreements,taking into account the remaining terms of the agreements and the counterparties' credit standing. The carrying amounts of these investments are reasonable estimates of the fair value of thesefinancial statements.

         The estimated fair values of the Company's financial instruments are as follows:
**2004****2003****CarryingAmount****FairValue****CarryingAmount****FairValue****Assets**     Cash and cash equivalents$19,743$19,743$23,068$23,068     Securities available for sale39,40939,40933,47233,472     Loans held for sale2,9132,9131,9752,001     Loans713,022719,318703,981712,277     Stock in FHLB7,9587,9587,2647,264     Cash value of life insurance27,09027,09026,14026,140     Interest receivable3,0393,0393,1943,194**Liabilities**     Deposits600,407584,928579,362580,378     FHLB advances139,427141,255134,592142,127     Notes payable2,1451,8532,5112,188     Interest payable1,0251,025851851     Advances by borrowers for taxes and insurance1,5791,5791,4481,448    83NEXT PAGE
***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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

         Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company:
**Condensed Balance Sheets****2004****2003****Assets**     Cash on deposit with Bank$832$1,623     Cash on deposit with others7124           Total cash and cash equivalents9031,647     Investment in common stock of Bank84,95894,121     Investment in affiliate982956     Deferred and current income tax1,031810     Other assets66           Total assets$87,880$97,540**Liabilities** - other$20$20**Stockholders' Equity**87,86097,520           Total liabilities and stockholders' equity$87,880$97,540
**Condensed Statements of Income**
****2004******2003****2002****Income**     Interest income from Bank$10$20$29    Interest income from investments----8    Interest income from loans--116324    Dividends from Bank15,0005,00021,500    Other income25130137         Total income15,0355,26621,998**Expenses**359331230**Income before income tax and equity in undistributed    **income of subsidiary****14,6764,93521,768**Income tax expense (benefit)**(128)(18)105**Income before equity in undistributed income of subsidiary**14,8044,95321,663**Equity in undistributed income of subsidiary**(9,282)3,109(13,183)**Net Income**$5,522$8,062$8,48084NEXT PAGE
***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)
**Condensed Statements of Cash Flows****2004****2003****2002****Operating Activities**          Net income$5,522$8,062$8,480     Item not requiring (providing) cash           ESOP shares earned752752585           Deferred income tax benefit186426236           Distributions in excess of (equity in undistributed income)                 income of Bank9,282(3,109)13,183     Other(184)123(266)           Net cash provided by operating activities15,5586,25422,218**Investing Activities**     Net change in loans--1,2501,250     Proceeds from maturities of securities available for sale----1,001          Net cash provided by investing activities--1,2502,251**Financing Activities**     Stock repurchased(14,706)(7,182)(21,184)     Cash dividends(2,150)(2,021)(1,896)     Proceeds from stock options exercised55497440           Net cash used in financing activities(16,302)(8,229)(23,040)**Net Change in Cash on Deposit With Bank**(744)(725)1,429**Cash on Deposit With Bank, Beginning of Year**1,6472,372943**Cash on Deposit With Bank, End of Year**$903$1,647$2,37285NEXT PAGE
***MutualFirst* Financial, Inc.Notes to Consolidated Financial StatementsDecember 31, 2004, 2003 and 2002**(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 21: Quarterly Results of Operations (Unaudited)**
**QuarterEnded****InterestIncome****InterestExpense****NetInterestIncome****ProvisionforLoanLosses****NetIncome****BasicEarningsPerCommonShare****DilutedEarningsPerCommonShare**2004      March$11,197$4,367$6,830$227$1,968$0.41$0.40     June11,0484,2116,8375301,8140.380.37     September10,9794,3686,6113501,7240.380.37     December11,1764,5306,646450160.000.00           Total$44,400$17,476$26,924$1,557$5,5221.191.162003     March$11,791$4,964$6,827$375$2,068$0.42$0.40     June11,7374,8286,9093752,3900.490.47     September11,5324,6966,8363251,9830.410.39     December11,3824,6116,7713751,6210.330.32           Total$46,442$19,099$27,343$1,450$8,0621.641.59 In the fourth quarter of 2004, the Company incurred an expense of approximately $1,700,000, net of tax ($.38 per diluted share) associated with a separation agreement entered into in November 2004with a former officer of the Bank.
**Note 22: Subsequent Event**

         On March 3, 2005, the Bank entered into a definitive agreement to purchase certain assets and assume certain liabilities representing theoperations of Fidelity Federal Savings Bank of Marion, Indiana. The Bank will pay $20 million in cash for these net assets, subject to adjustments. The purchase which requires the approval of theOffice of Thrift Supervision, is scheduled to close in the third quarter of 2005.

**Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure**

         No disclosure under this item is required.
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**Item 9A. Controls and Procedures**

         An evaluation of our disclosure controls and procedures (as defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the"Exchange Act")) as of December 31, 2004, was carried out under the supervision and with the participation of the our Chief Executive Officer, Principal Financial Officer and several other members ofour senior management within the 90-day period preceding the filing date of this annual report. Our Chief Executive Officer and Principal Financial Officer concluded that, as of December 31, 2004,our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) accumulated andcommunicated to our management (including our Chief Executive Officer and Principal Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the timeperiods specified in the SEC's rules and forms.

         There were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurredduring the quarter ended December 31, 2004, that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

         We do not expect that our disclosure controls and procedures will present all error and all fraud. A control procedure, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, noevaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within *MutualFirst* have been detected. These inherent limitations include therealities that judgment in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can circumvented by the individual acts of somepersons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood offuture events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because ofchanges in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due toerror or fraud may occur and not be detected.

         The Sarbanes-Oxley Act of 2002 (the"Act") imposed many requirements regarding corporate governance and financial reporting. One requirementunder Section 404 of the Act, beginning with this annual report, is for management to report on the effectiveness of *MutualFirst*'s internal control over financial reporting as of December31, 2004, and for our independent registered public accounting firm to attest to this report. On November 30, 2004, the Securities and Exchange Commission issued an exemptive order providing a 45-dayextension for the filing of these reports and attestations by eligible companies. We elected to utilize this 45-day extension; accordingly this Form 10-K does not include these reports but anamendment to this Form 10-K, including these reports will be filed on or before May 2, 2005. Currently, we are not aware of any material weaknesses in our internal control over financialreporting.
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**Item 9B. Other Information**

         None.
**PART III**
**Item 10. Directors and Executive Officers of the Registrant**

**Directors**

         Information concerning the Company's directors is incorporated herein by reference from the Company's definitive proxy statement for itsAnnual Meeting of Stockholders to be held in April 2005, except for information contained under the headings "Compensation Committee Report on Executive Compensation", "Shareholder Return PerformancePresentation" and "Report of the Audit Committee", a copy of which will be filed not later than 120 days after the close of the fiscal year.

**Executive Officers**

         Information concerning the executive officers of the Company who are not directors is incorporated herein by reference from Part I of thisForm 10-K under the caption "Executive Officers of the Registrant Who Are Not Directors."

**Audit Committee Financial Expert**

         Information concerning the audit committee of the Company's Board of Directors, including information regarding audit committee financialexperts serving on the audit committee, is incorporated herein by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held in April 2005, except for informationcontained under the heading "Report of the Audit Committee," a copy of which will be filed not later than 120 days after the close of the fiscal year.

**Section 16(a) Beneficial Ownership Reporting Compliance**

         Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than 10% of a registeredclass of the Company's equity securities, to file with the SEC reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directorsand greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

         To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations thatno other reports were required during the fiscal year ended December 31, 2004, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners werecomplied with.
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**Code of Ethics**

         The Company adopted a written Code of Ethics based upon the standards set forth under Item 406 of Regulation S-K of the Securities ExchangeAct. The Code of Ethics applies to all of the Company's directors, officers and employees. A copy of the Company's Code of Ethics was filed with the SEC as Exhibit 14 to the Annual Report on Form10-K for the year ended December 31, 2003. You may obtain a copy of the Code of Ethics free of charge from the Company by writing to our Corporate Secretary at *MutualFirst* Financial, Inc.,110 E. Charles Street, Muncie, Indiana 47305-2419 or by calling (765) 747-2800.

**Item 11. Executive Compensation**

         Information concerning executive compensation is incorporated herein by reference from the Company's definitive proxy statement for its AnnualMeeting of Stockholders to be held in April 2005, except for information contained under the headings "Compensation Committee Report on Executive Compensation", "Shareholder Return PerformancePresentation" and "Report of the Audit Committee", a copy of which will be filed not later than 120 days after the close of the fiscal year.

**Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters**

         Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the Company'sdefinitive proxy statement for its Annual Meeting of Stockholders to be held in April 2005, except for information contained under the headings "Compensation Committee Report on ExecutiveCompensation", "Shareholder Return Performance Presentation" and "Report of the Audit Committee", a copy of which will be filed not later than 120 days after the close of the fiscal year.

         *Equity Compensation Plan Information.* The following table summarizes our equity compensation plans as of December 31, 2004.
Plan CategoryNumber of securities tobe issued upon exerciseof outstanding optionswarrants and rightsWeighted-averageexercise price ofoutstanding optionswarrants and rightsNumber of securitiesremaining available forfuture issuance underequity compensation plansEquity compensation     plans approved by     security holders487,814$16.1514,161(1)Equity compensation      plans not approved     by security holders---------
___________

(1) Includes 14,161 shares available for future grants under *MutualFirst* Financial, Inc's stock option plan.
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**Item 13. Certain Relationships and Related Transactions**

         Information concerning certain relationships and related transactions is incorporated herein by reference from the Company'sdefinitive proxy statement for its Annual Meeting of Stockholders to be held in April 2005, except for information contained under the headings "Compensation Committee Report on ExecutiveCompensation", "Shareholder Return Performance Presentation" and "Report of the Audit Committee", a copy of which will be filed not later than 120 days after the close of the fiscal year.

**Item 14. Principal Accountant Fees and Services**

         Information concerning principal accountant fees and services are incorporated herein by reference from the definitive proxy statement for theAnnual Meeting of Stockholders to be held in April 2005 (excluding the information contained under the heading of "Report of the Audit/Compliance Committee") a copy of which will be filed no laterthan 120 days after December 31, 2004.

**PART IV**

**Item 15.  Exhibits and Financial Statement Schedules**

         **(a)(1) List of Financial Statements**

         The following are contained in Item 8 of this Form 10-K:
Annual Report SectionReport of Independent Registered Public Accounting FirmConsolidated Balance Sheets at December 31, 2004 and 2003Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2004,     2003 and 2002Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and     2002Notes to Consolidated Financial Statements
         **(a)(2) List of Financial Statement Schedules**:

         All financial statement schedules have been omitted as the information is not required under the related instructions or is notapplicable.
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         **(a)(3) List of Exhibits**:
**Regulation S-KExhibitNumber****Document****Reference toPrior Filing orExhibitNumberAttachedHereto**2Plan of acquisition, reorganization, arrangement, liquidation or successionNone3(i)Articles of Incorporation*3(ii)Amended Bylaws++4Instruments defining the rights of security holders, including indentures:Form of *MutualFirst* Financial, Inc. Common Stock Certificate*9Voting Trust AgreementNone10Material contracts:   Employment Agreement with David W. Heeter+++   Employment Agreement with Patrick C. Botts+++   Employment Agreement with Timothy J. McArdle**   Form of Supplemental Retirement Plan Income Agreements for R. Donn Roberts,      Steven Campbell, Patrick C. Botts, David W. Heeter, Timothy J. McArdle and      Stephen C. Selby**   Form of Director Shareholder Benefit Program, as amended, for Steven L. Banks++   Form of Executive Shareholder Benefit Program Agreement, as amended, for Steven      L. Banks++   Form of Director Shareholder Benefit Program Agreement, as amended, for Jerry D.      ∓McVicker++   Form of Agreements for Executive Deferred Compensation Plan for R. Donn Roberts,      Patrick C. Botts, Steven Campbell, David W. Heeter, Timothy J. McArdle and      Stephen C. Selby**Registrant's 2000 Stock Option and Incentive Plan***Registrant's 2000 Recognition and Retention Plan***Named Executive Officer Salary and Bonus Arrangements for 200510.1Director Fee Arrangements for 200510.211Statement re computation of per share earningsNone12Statements re computation of ratiosNone14Code of Ethics+++16Letter re change in certifying accountantNone18Letter re change in accounting principlesNone21Subsidiaries of the registrant2122Published report regarding matters submitted to vote of security holdersNone23Consents of Experts and Counsel2324Power of AttorneyNone31.1Rule 13(a)-14(a) Certification (Chief Executive Officer)31.131.2Rule 13(a)-14(a) Certification (Chief Financial Officer)31.232Section 1350 Certification32_________________________*Filed as an exhibit to the Company's Form S-1 registration statement filed on September 16, 1999 (File No. 333-87239) pursuant to Section 5 of the Securities Act of 1933.Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.**Filed as an exhibit to the Company's Annual Report on Form 10-K filed on March 30, 2000 (File No. 000-27905). Such previously filed document is incorporated herein by reference inaccordance with Item 601 of Regulation S-K.***Filed as an Appendix to the Company's Form S-4/A Registration Statement filed on October 19, 2000 (File No. 333-46510). Such previously filed document is incorporated herein byreference in accordance with Item 601 of Regulation S-K.++Filed as an exhibit to the Company's Annual Report on Form 10-K filed on April 2, 2001 (File No. 000-27905). Such previously filed document is incorporated herein by reference inaccordance with Item 601 of Regulation S-K.+++Filed as an exhibit to the Company's Annual Report on Form 10-K filed on March 15, 2004 (File No. 000-27905). Such previously filed document is incorporated herein by reference inaccordance with Item 601 of Regulation S-K.91NEXT PAGE
**             (b)  Exhibits** - Included, see list in (a)(3).

             **(c)  Financial Statements Schedules** - None
92NEXT PAGE**SIGNATURES**
         Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized. *MutualFirst* Financial, Inc.   By:/s/ David W. HeeterDavid W. Heeter, President and Chief Executive Officer*(Duly Authorized Representative)*
         Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated.
/s/ David W. Heeter/s/ Wilbur R. DavisDavid W. Heeter, President and Director*(Principal Executive Officer)*Wilbur R. Davis, Chairman of the Board  Date:   March 16, 2005Date:   March 16, 2005  /s/ R. Donn Roberts/s/ Edward J. DobrowR. Donn Roberts, DirectorEdward J. Dobrow, Director  Date:   March 16, 2005Date:   March 16, 2005  /s/ Linn A. Crull/s/ James D. RosemaLinn A. Crull, DirectorJames D. Rosema, Director  Date:   March 16, 2005Date:   March 16, 2005  /s/ William V. Hughes/s/ Jerry D. McVickerWilliam V. Hughes, DirectorJerry D. McVicker, Director  Date:   March 16, 2005Date:   March 16, 2005  /s/ Julie A. Skinner/s/ John M. DaltonJulie A. Skinner, DirectorJohn M. Dalton, Director  Date:   March 16, 2005Date:   March 16, 2005  /s/ Patrick C. Botts/s/ Jon R. MarlerPatrick C. Botts, DirectorJon R. Marler, Director  Date:   March 16, 2005Date: March 16, 2005  /s/ Timothy J. McArdleTimothy J. McArdle, Senior Vice President,Treasurer and Controller     *(Principal Financial and AccountingOfficer)*  Date:   March 16, 2005******NEXT PAGE******INDEX TO EXHIBITS****NumberDescription  10.1Named Executive Officer Salary and Bonus Arrangements for 2005  10.2Director Fee Arrangements for 2005  21Subsidiaries of the Registrant  23Consent of Accountants  31.1Rule 13(a)-14(a) Certification (Chief Executive Officer)  31.2Rule 13(a)-14(a) Certification (Chief Financial Officer)  32Section 1350 CertificationEND |