---



|[X]  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934    
|---- | ----------------------------------------------------------------------------------------
|     | For the fiscal year ended December 31, 2005                                             
|     |                                                                                         
|     | OR                                                                                      
|[  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|     | For the transition period from __________________ to __________________                 



|**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)                          











Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES [  ]      NO [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
  YES [  ]    NO [X]

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

Indicate by check mark 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 in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES [   ]   NO [ X ]

The aggregate market value of the voting and non-voting  common equity held by non-affiliates, computed by reference to
the last sale price of such stock on the Nasdaq National Market as of June 30, 2005, the last business day of the registrant's most
recently completed second fiscal quarter, was approximately $74.2 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 that such person is an affiliate of the registrant.)

As of March 2, 2006, there were issued and outstanding 4,545,000 shares of the registrant's common stock.



PART III of Form 10-K--Portions of registrant's Proxy Statement for its 2006 Annual Meeting of Stockholders.

---



**Item 1.  Business**

**General**

*MutualFirst* Financial, Inc., a Maryland corporation, is a savings and loan holding
company that has as its wholly-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's conversion from the mutual to stock form of
organization on December 29, 1999.   In April 2001, 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, 2005, we had total assets of $971.8 million, deposits of $684.6 million
and stockholders' equity of $88.8 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."  In September 2005, Mutual Federal purchased $118.1
million in assets and assumed $97.8 million in liabilities representing the operations of Fidelity
Federal Savings Bank located in Marion Indiana for $20 million in cash.  The assets purchased
included $59.3 million in residential real estate mortgage loans, $8.4 million in consumer loans,
and $14.5 million in commercial and construction loans.  The liabilities assumed included total
deposits of $75.9 million and $20.5 million in Federal Home Loan Bank advances.

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").

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

Our profitability depends primarily on net interest income, which is the difference
between interest and dividend income on interest-earning assets, and interest expense on
interest-bearing liabilities.  Interest-earning assets include principally loans, investment
securities, including mortgage-backed and related securities 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 is also 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 in interest 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 and statement savings accounts, money market deposit accounts,
NOW and non-interest bearing checking accounts and certificates of deposit with terms ranging

from seven days to 71 months.  We solicit most of our deposits in our market area, though in
2005, we began to accept brokered deposits.  See "Sources of Funds -- Deposits."

**Forward-Looking Statements**

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

**Market Area**

We are a community-oriented financial institution offering a variety of financial services
to meet the needs of the communities we serve.  We are headquartered in Muncie, Indiana and
we offer our financial services through 20 retail offices primarily serving Delaware, Randolph,
Kosciusko and Grant counties in Indiana.  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.
Mortgage loans are generally long-term and amortize on a monthly basis with principal and
interest due each month.  At December 31, 2005, our net loan portfolio totaled $824.6 million,
which constituted84.8% 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 LoanCommitteemembers 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 ExecutiveLoan Committee members.  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 excess of $1.5
million and loans of any

amount to a borrower whose aggregate debt will exceed $3.0 million
must be approved by the Board of Directors.

At December 31, 2005, the maximum amount which we could lend to any one borrower
and the borrower's related entities was approximately $11.9 million.  At December 31, 2005, our
largest lending relationship to a single borrower or a group of related borrowers consisted of five
loans totaling $5.7 million.  Four of these loans are secured by newly constructed auto service
centers.  The fifth loan is secured by a drive-in/carry-out food establishment.  Each of the loans to
this group of borrowers was current and performing in accordance with its terms at December 31,
2005.

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

|                                 | December 31,          
|-------------------------------- | ----------------------
|                                 | 2005                  
|                                 | Amount                
|                                 | (Dollars in Thousands)
|Real Estate Loans:              
|One- to four-family              | $451,914(1)           
|Multi-family                     | 5,505                 
|Commercial                       | 77,270                
|Construction and     development | 22,938                
|Total real estate loans          | 557,627               
|                                 |                       
|Other Loans:                    
|Consumer Loans:                 
|Automobile                       | 39,802                
|Home equity                      | 31,962                
|Home improvement                 | 31,933                
|Manufactured housing             | 2,106                 
|R.V.                             | 64,222                
|Boat                             | 40,631                
|Other                            | 4,305                 
|Total consumer loans             | 214,961               
|Commercial business loans        | 64,353                
|Total other loans                | 279,314               
|Total loans receivable, gross    | 836,941(1)            
|                                 |                       
|Less:                           
|Undisbursed portion of loans     | 7,724                 
|Deferred loan fees and costs     | (3,453)               
|Allowance for losses             | 8,100                 
|Total loans receivable, net      | $824,570              

_______________

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

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

|                             | December 31,          
|---------------------------- | ----------------------
|                             | 2005                  
|                             | Amount                
|                             | (Dollars in Thousands)
|Fixed-Rate Loans:           
|Real estate:                
|One- to four-family          | $305,911(1)           
|Multi-family                 | 4,587                 
|Commercial                   | 9,375                 
|Construction and development | 12,690                
|Total real estate loans      | 332,563               
|                            
|Consumer                     | 182,784               
|Commercial business          | 20,000                
|Total fixed-rate loans       | 535,347               
|                             |                       
|Adjustable-Rate Loans:      
|Real estate:                
|One- to four-family          | 146,003               
|Multi-family                 | 918                   
|Commercial                   | 67,895                
|Construction and development | 10,248                
|Total real estate loans      | 225,064               
|                             |                       
|Consumer                     | 32,177                
|Commercial business          | 44,353                
|Total adjustable-rate loans  | 301,594               
|Total loans                  | 836,941(1)            
|                             |                       
|Less:                       
|Undisbursed portion of loans | 7,724                 
|Deferred loan fees and costs | (3,453)               
|Allowance for loan losses    | 8,100                 
|Total loans receivable, net  | $824,570              

________________

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

The following schedule illustrates the contractual maturity of our loan portfolio at December 31, 2005.  Mortgages that have adjustable or
renegotiable 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-sale clauses.

|                                    | Real Estate           
|----------------------------------- | ----------------------
|                                    | One- to Four-Family(1)
|                                    | Amount                
|                                    | (Dollars in Thousands)
|Due DuringYears Ending
December 31,
|2006(3)                             | $      100            
|2007                                | 325                   
|2008                                | 1,769                 
|2009 and 2010                       | 3,121                 
|2011 to 2012                        | 12,197                
|2013 to 2027                        | 227,416               
|2028 and following                  | 204,964               
|Total                               | $449,892              

The total amount of loans due after December 31, 2006 which have predetermined interest rates is $516.3 million, and the total amount of loans due after such date which have
floating or adjustable interest rates is $275.4 million.

***One- to Four-Family Residential Real Estate Lending.*****  We focus our real estate
lending efforts primarily on the origination of loans secured by first mortgages on
owner-occupied, one- to four-family residences in our market areas.  At December 31, 2005, one-
to four-family residential mortgage loans totaled $451.9 million, or 54.00% 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 of the 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 of 80%, 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 fee appraisers 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, is required 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 strategy for 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 or ARM 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 the remainder 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 2005, we originated $37.7 million of one- to four-family
ARM loans and $70.1 million of one- to four-family fixed-rate mortgage loans.  By way of
comparison, during fiscal 2004, we originated $44.8 million of one- to four-family ARM loans,
and $72.6 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 interest rates 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 not permit 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 due monthly.  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 the date 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 a fixed-rate loan.  When
these loans convert, they may be sold in the secondary market.

In order to remain competitive in our market areas, we sometimes originate ARM loans
at initial rates below the fully indexed rate.****ARM loans generally 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 experienced difficulty with the payment history for these
loans.  See "Asset Quality -- Non-performing Assets" and "-- Classified Assets."  At December
31, 2005, our one- to four-family ARM loan portfolio totaled $146.0 million, or 17.4% of our
gross loan portfolio.  At that date, the fixed-rate one- to four-family mortgage loan portfolio
totaled $305.9 million, or 36.6% of our gross loan portfolio.

***Multi-family and Commercial Real Estate Lending*****.  We offer a variety of multi-family
and commercial real estate loans for 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 to churches, office buildings and multi-family housing
complexes.  At December 31, 2005, multi-family and commercial real estate loans totaled $82.8
million, or 9.9% 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 rate on 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 loans typically 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 25 years.

Loans secured by multi-family and commercial real estate are underwritten based on the
income producing potential of the property and the financial 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 payments related 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 assignment of 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 are performed 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 to monitor 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- to four-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 loans secured by multi-family and commercial real
estate are often dependent on the successful operation or management of the properties,
repayment of such loans may be subject to adverse conditions in the real estate market or the
economy.  If the cash flow from the project is reduced, or if leases are not obtained or renewed,
the borrower's ability to repay the loan may be impaired.  See "Asset Quality -- Non-performing
Assets."

***Construction and Development Lending*****.  We originate construction loans primarily
secured by existing residential building 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 market area.  At December 31, 2005, we had $22.9 million in
construction and development loans outstanding, representing 2.7% of our gross loan portfolio.

Construction and development loans are obtained through continued business with
builders who have previously borrowed from us, from walk-in customers and through referrals
from realtors and architects.  The application process includes submission of complete plans,
specifications and costs of the project to be constructed.  This information 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 the construction 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 of the 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 is difficult 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 involve many 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.  In addition, 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 to changes 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 to expand and create stronger ties to our customer
base by increasing the number of customer relationships and providing cross-marketing
opportunities.  At December 31, 2005, our consumer loan portfolio totaled $215.0 million, or
25.7% 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 recreational vehicle 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.

At December 31, 2005, our home equity loans, including lines of credit and home
improvement loans, totaled $63.9 million, or 7.6% of our gross loan 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 maturity on 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 the outstanding
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 the
borrower.

We directly and indirectly originate auto, boat and recreational vehicle loans.  We
generally buy indirect auto loans on a rate basis, paying the 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 charged to 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, 2005, auto loans totaled $39.8 million, or 4.8% of our gross loan
portfolio.  Auto loans may be written for up to 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 car guides.

Our boat and recreational vehicle loans are generally originated on an indirect basis.
Until November 2004, we utilized an independent company to market our loan products and help
service and collect our boat and RV loans, containing our marketing, collection and related
personnel costs.  For these services, we paid a fee based on a percentage 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 loan based 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 life of
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 only the more qualified buyers based on our
scoring.

Loans for boats and recreational vehicles totaled $104.9 million at December 31, 2005,
or 12.5% of our gross loan portfolio. We will finance up to 100% of the purchase price for a
recreational vehicle and 95% for a boat.  Values are based on the applicable official used vehicle
guides.  The term to maturity for these types of loans is up to 10 years for used boats and
recreational vehicles and up to 15 years for new boats and recreational vehicles.  These loans are
generally written with fixed rates of interest.

At December 31, 2005, manufactured housing loans totaled $2.1 million, or 0.3% of our
gross loan portfolio.  Due to increased competition, we no longer offer manufactured housing
loans, and have allowed this portion of the loan portfolio to decline over the past six years.

Consumer loans may entail greater risk than one- to four-family residential mortgage
loans, especially consumer loans secured by rapidly depreciable 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 the outstanding 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, 2005, commercial business loans
totaled $64.4 million, or 7.7% of our gross 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 and accounts 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 as seed, 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 secured basis.  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 the loan, 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 is an 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 than traditional single family loans.

Unlike residential mortgage loans, commercial business loans are typically made on the
basis of the borrower's ability to make repayment from the 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 over time, may be
difficult to appraise and may fluctuate in value based on the success of the business.

**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.  We also 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 customer demand 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 volume of 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 sold our 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 past few 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 of loans may be substantially reduced or restricted,
with a resultant decrease in interest income.

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

|                                        | Year Ended December 31,
|--------------------------------------- | -----------------------
|                                        | 2005                   
|                                        | (In Thousands)         
|Originations by type:                  
|Adjustable rate:                        |                        
|Real estate - one- to four-family       | $  37,682              
|- multi-family                          | ---                    
|- commercial                            | 9,594                  
|- construction or development           | 8,806                  
|Non-real estate - consumer              | 34                     
|- commercial business                   | 5,213                  
|Total adjustable-rate                   | 61,329                 
|Fixed rate:                             |                        
|Real estate - one- to four-family       | 70,135                 
|- multi-family                          | ---                    
|- commercial                            | 4,207                  
|- construction or development           | 14,148                 
|Non-real estate - consumer              | 58,446                 
|- commercial business                   | 8,032                  
|Total fixed-rate                        | 154,968                
|Total loans originated                  | 216,297                
|                                        |                        
|Purchases:(1)                           |                        
|Real estate - one- to four-family       | 59,269                 
|- multi-family                          | ---                    
|- commercial                            | 3,363                  
|- construction or development           | 3,628                  
|Non-real estate - consumer              | 8,371                  
|- commercial business                   | 7,610                  
|Total loans purchased                   | 82,241                 
|                                        |                        
|Sales and Repayments:                   |                        
|Sales:                                  |                        
|Real estate - one- to four-family       | 13,471                 
|- multi-family                          | ---                    
|- commercial                            | ---                    
|- construction or development           | ---                    
|Non-real estate - consumer              | ---                    
|- commercial business                   | ---                    
|Total loans sold                        | 13,471                 
|Principal repayments                    | 173,920                
|Total reductions                        | 187,391                
|Increase (decrease) in other items, net | (2,430)                
|Net increase                            | $108,717               

**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 due date.  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 to cure the delinquency by contacting the borrower
once the loan is 30 days past due.  If the loan becomes 60 days delinquent, the collector will
generally contact the borrower by phone or send a letter to the borrower in order to identify the
reason for the delinquency.  Once the loan becomes 90 days delinquent, the borrower is asked to
pay the delinquent amount in full, or establish an acceptable repayment plan to bring the loan
current.  Between 100 and 120 days delinquent a drive-by inspection is made to determine the
condition of the property.  If the account becomes 120 days delinquent, and an acceptable
repayment plan has not been agreed upon, a collection officer will generally refer the account to
legal counsel, with instructions to prepare a notice of intent to foreclose.  The notice of intent to
foreclose allows the borrower up to 30 days to bring the account current.  During this 30 day
period, the collector may accept a written repayment plan from the borrower which would bring
the account current within the next 90 days.  If the loan becomes 150 days delinquent and an
acceptable repayment plan has not been agreed upon, the collection officer will turn over the
account to our legal counsel with instructions to initiate foreclosure.

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, 2005, our loans
delinquent 60 - 89 days by type, number, amount and percentage of type.

|                             | Loans Delinquent For: 
|---------------------------- | ----------------------
|                             | 60-89 Days            
|                             | Number                
|                             | (Dollars in Thousands)
|Real Estate:                 |                       
|One- to four-family          | 43                    
|Multi-family                 | ---                   
|Commercial                   | ---                   
|Construction and development | ---                   
|Consumer                     | 105                   
|Commercial business          | 1                     
|                             |                       
|Total                        | 149                   

***Non-performing Assets.***  The table below sets forth the amounts and categories of non-performing assets in our loan portfolio at the dates indicated.  Generally, 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 owned include assets acquired in settlement of loans.

|                                               | December 31,          
|---------------------------------------------- | ----------------------
|                                               | 2005                  
|                                               | (Dollars in Thousands)
|Non-accruing loans:                            |                       
|One- to four-family                            | $2,967                
|Multi-family                                   | ---                   
|Commercial real estate                         | 569                   
|Construction and development                   | ---                   
|Consumer                                       | 628                   
|Commercial business                            | 1,257                 
|Total                                          | 5,421                 
|                                               |                       
|Accruing loans delinquent 90 days or
    more: |                       
|One- to four-family                            | 67                    
|Multi-family                                   | ---                   
|Commercial real estate                         | 1,858                 
|Construction and development                   | ---                   
|Consumer                                       | 35                    
|Commercial business                            | ---                   
|Total                                          | 1,960                 
|Total nonperfoming loans                       | 7,381                 
|                                               |                       
|Restructured loans                             | 116                   
|                                               |                       
|Foreclosed assets:                             |                       
|One- to four-family                            | 912                   
|Multi-family                                   | ---                   
|Commercial real estate                         | 595                   
|Construction and development                   | ---                   
|Consumer                                       | 978                   
|Commercial business                            | ---                   
|Total                                          | 2,485                 
|                                               |                       
|Total non-performing assets                    | $9,982                
|Total as a percentage of total assets          | 1.03%                 

For the year ended December 31, 2005, gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms amounted to $542,000.  The
amount included in interest income on these loans for the year ended December 31, 2005, was $124,000.

At December 31, 2005, foreclosed commercial real estate consisted of two commercial buildings
in Grant County and one commercial building in Delaware County, which are currently being offered for
sale.  In addition, 19 residential properties with a book value of $912,000 remain as foreclosed assets at
December 31, 2005.  These properties are being offered for sale.  Non-accruing one- to four-family loans
increased to $3.0 million at December 31, 2005.  Non-accruing commercial real estate loans increased

from $370,000 at December 31, 2004, to $569,000 at December 31, 2005, due primarily to four loans
becoming more than ninety days past due.  At the same time, non-accrual commercial business loans
decreased from $1.8 million to $1.3 million, which consists of six loans.  Efforts are underway to bring
these six non-accrual commercial business loans current or have them paid off.  It is management's
opinion that these non-accruing loans are sufficiently reserved and any additional allowances will be
insignificant.

***Other Loans of Concern.*****  In addition to the non-performing assets set forth in the table above, as
of December 31, 2005, there was an aggregate of $3.0 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 the abilities 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
been considered in management's determination of the adequacy of our allowance for loan losses.

Included in the $3.0 million above are two commercial business loans totaling $500,000, one
commercial real estate loans totaling $500,000 and five residential mortgage loans totaling $2.0 million.
The majority of these loans were current as of December 31, 2005.

***Classified Assets.***Federal regulations provide for the classification of loans and other assets, such
as debt and equity 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 protected
by 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 insured institution
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 added characteristic that the
weaknesses present make "collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable."  Assets classified 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 losses in 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 associated with 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 required either 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 of its 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
loss allowances.

In connection with the filing of Mutual Federal's periodic reports with the Office of Thrift
Supervision and in accordance with our classification 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 basis of management's review, at December 31, 2005, we had classified
$13.0 million of Mutual Federal's loans as substandard, $150,000 as doubtful and $440,000 as loss.
Loans classified as

loss are fully reserved but not charged off, because there are certain indications that
collection is still possible.  The total amount classified represented 15.27% of our stockholders' equity
and 1.40% of our assets at December 31, 2005, compared to 9.01% and .95%, respectively, at December
31, 2004.  These increases are due to a continued sluggish economy in some of our markets.

***Provision for Loan Losses*****.  We recorded a provision for loan losses during the year ended
December 31, 2005 of $1.8 million, compared to $1.6 million for the year ended December 31, 2004 and
$1.5 million for the year ended December 31, 2003.  The provision for loan losses is charged to income
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 losses during the year
ended December 31, 2005 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 portfolio as of December 31,
2005.

***Allowance for Loan Losses*****.  We maintain an allowance for loan losses to absorb losses inherent
in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated losses
inherent in the loan portfolio.  Our methodology for assessing the appropriateness of the allowance
consists of several key elements, including the formula allowance and specific allowances for identified
problem loans and portfolio segments.  In addition, the allowance incorporates the results of measuring
impaired loans as provided in SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition 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 pools of 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 on significant 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 conditions affecting 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, loan volumes and concentrations, specific industry conditions within
portfolio segments and recent loss experience in particular segments of the portfolio that existed as of
the balance sheet date and the impact that such conditions were believed to have had on the collectibility
of the loan.  Senior management reviews these conditions quarterly in discussions with our senior credit
officers.  To the extent that any of these conditions is evidenced by a specifically identifiable problem
credit or portfolio segment as of the evaluation date, management's estimate of the effect of such
condition may be reflected as a specific allowance applicable to such credit or portfolio segment.  Where
any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment
as of the evaluation date, management's evaluation of the loss related to this condition is reflected in the
unallocated allowance.  The evaluation of the inherent loss with respect to these conditions is subject to
a higher degree of uncertainty because they are not identified with specific problem credits or portfolio
segments.

The allowance for loan losses is based on estimates of losses inherent in the loan portfolio.
Actual losses can vary significantly from the estimated amounts.  Our methodology as described permits
adjustments to any loss factor used in the computation of the formula allowance in the event that, in
management's judgment, significant factors 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 a quarterly basis, we are able to adjust specific and inherent loss estimates based upon
any more recent information that has become available.  Due to the loss of numerous manufacturing jobs
in the communities we serve during recent years, including 2005, and the increase in higher risk loans,
like consumer and commercial loans, as a percentage of total loans, management has concluded that our
allowance for loan losses should be greater than historical loss experience and specifically identified
losses would otherwise indicate.

At December 31, 2005, our allowance for loan losses was $8.1 million, or .98% of the total loan
portfolio, and approximately 109.7% of total non-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 flows expected 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 estimated loan losses inherent in our loan portfolio.

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

|                                                                                          | Year Ended December 31,
|----------------------------------------------------------------------------------------- | -----------------------
|                                                                                          | 2005                   
|                                                                                          | (Dollars in Thousands) 
|                                                                                          |                        
|Balance at beginning of period                                                            | $6,867                 
|                                                                                          |                        
|Charge-offs:                                                                              |                        
|One- to four-family                                                                       | 303                    
|Multi-family                                                                              | ---                    
|Commercial real estate                                                                    | 6                      
|Construction and development                                                              | ---                    
|Consumer                                                                                  | 1,276                  
|Commercial business                                                                       | 954                    
|                                                                                          | 2,539                  
|                                                                                          |                        
|Recoveries:                                                                               |                        
|One- to four-family                                                                       | 22                     
|Multi-family                                                                              | ---                    
|Commercial real estate                                                                    | 120                    
|Construction and development                                                              | ---                    
|Consumer                                                                                  | 194                    
|Commercial business                                                                       | 15                     
|                                                                                          | 351                    
|                                                                                          |                        
|Net charge-offs                                                                           | 2,188                  
|Amount acquired with Fidelity purchase                                                    | 1,646                  
|Provisions charged to operations                                                          | 1,775                  
|Balance at end of period                                                                  | $8,100                 
|                                                                                          |                        
|Ratio of net charge-offs during the period
to average loans outstanding during the
period | 0.29%                  
|                                                                                          |                        
|Allowance as a percentage of non-performing loans                                         | 109.74%                
|                                                                                          |                        
|Allowance as a percentage of total loans
  (end of period)                                | 0.98%                  

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

|                              | December 31,               
|----------------------------- | ---------------------------
|                              | 2005                       
|                              | Amount ofLoan LossAllowance
|                              | (Dollars in Thousands)     
|                             
|One- to four-family           | $1,267                     
|Multi-family                  | 68                         
|Commercial real estate        | 2,039                      
|Construction or
  development | 115                        
|Consumer                      | 3,605                      
|Commercial business           | 1,006                      
|Unallocated                   | ---                        
|Total                         | $8,100                     

**Investment Activities**

Mutual Federal may invest in various types of liquid assets, including United States
Treasury obligations, securities of various federal agencies, 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 federally chartered 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 on our investment
activities.

The Chief Financial Officer has the basic responsibility for the management of our
investment portfolio, subject to the direction and guidance of the Asset and Liability
Management Committee.  The Chief Financial Officer considers various factors when making
decisions, including the marketability, maturity and tax consequences of the proposed
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 when loan 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 and Analysis 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) and corporate obligations.  See Note 4 of the Notes
to Consolidated Financial Statements contained in Item 8 of this Form 10-K.  At December 31,
2005, our investment securities portfolio did not contain any 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 a fluctuating 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 both the 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 a portfolio of up to $5.0 million, and to trade
up to $2.0 million in these securities at any one time.  At December 31, 2005, however, we did

not have a trading portfolio.  See Note 4 of the Notes to Consolidated Financial Statements
contained in Item 8 of this Form 10-K.

Mutual Federal has investments in five separate Indiana limited partnerships that were
organized to construct, own and operate two multi-unit apartment 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 is Pedcor Investments.  The two
Indianapolis area Pedcor Projects and the Pedcor project located in Niles, Michigan, are operated
as multi-family, low and moderate-income housing projects, and have been 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 2001.  At the inception 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, 2005, $1.4 million of this commitment
remained 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, 2005,
$576,000 remained payable over the next three years.  At the inception of the Goshen, Indiana
Pedcor Project, in March 2004, 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) the units 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 family size, 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 generally must 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, 2005, at least 83% 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 $811,000 for the year ended December 31, 2005,
$800,000 for the year ended December 31, 2004, and $753,000 for the year ended December 31,
2003 from the Pedcor Projects. The Pedcor Projects have incurred operating losses in the early
years of their operations primarily due to accelerated depreciation of assets.  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 the Pedcor Projects.

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

|                                                     | For the Year Ended December 31,
|---------------------------------------------------- | -------------------------------
|                                                     | 2005                           
|                                                     | (In Thousands)                 
|                                                     |                                
|Investments in Pedcor low income housing projects    | $4,606                         
|                                                     |                                
|Equity in losses, net of income tax effect           | $ (104)                        
|Tax credit                                           | 811                            
|Increase in after-tax income from Pedcor Investments | $  707                         

See Note 7 of the Notes to Consolidated Financial Statements contained in Item 8 of this
Form 10-K for additional information regarding our limited partnership investments.

The following table sets forth the composition of our investment and mortgage-related securities portfolio and other investments
at the dates indicated.  As of December 31, 2005, 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 those issued by the United States Government or its agencies.

|                                          | December 31,  
|----------------------------------------- | --------------
|                                          | 2005          
|                                          | AmortizedCost 
|                                          | (In Thousands)
|                                         
|Investment securities available-for-sale:
|Mutual funds                              | $ 15,218      
|Government sponsored entities             | 2,137         
|Mortgage-backed securities                | 1,802         
|Collateralized mortgage obligations       | 8,195         
|Corporate obligations                     | 13,059        
|Municipal obligations                     | ---           
|Total investment securities held for sale | 40,411        
|Investment in limited partnerships        | 4,606         
|Investment in insurance company           | 590           
|Federal Home Loan Bank stock              | 10,125        
|                                          |               
|Total investments                         | $55,732       

|                              | Due in                
|----------------------------- | ----------------------
|                              | Less Than1 Year       
|                              | AmortizedCost         
|                              | (Dollars in Thousands)
|                             
|Corporate obligations         | $      ---            
|Government sponsored entities | 1,000                 
|Mutual funds                  | 15,218                
|Mortgage-backed securities:  
|Freddie Mac                   | ---                   
|Fannie Mae                    | 6                     
|Ginnie Mae                    | ---                   
|Other                         | ---                   
|                              | $16,224               
|                              |                       
|Weighted average yield        | 2.65%                 

**Sources of Funds**

***General.***  Our sources of funds are deposits, borrowings, payment of principal and interest
on loans, interest earned on 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.  Our deposits consist of savings deposit accounts, NOW and demand
accounts and certificates of deposit.   We solicit deposits in our market areas.  We primarily rely
on competitive pricing policies, marketing and customer service to attract and retain these
deposits.  Beginning in 2005, we began accepting brokered deposits.  We receive these deposits
from****one broker without paying a fee to that broker.  At December 31, 2005, our brokered
deposits totaled $7.9 million with an average interest rate of 4.10% and a three-month weighted
average maturity.  These brokered deposits may be more volatile than our other deposits.

The flow of deposits is influenced significantly by general economic conditions, changes in
money market and prevailing interest rates, and competition.  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-term fluctuations 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 and profitability 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 these deposits, however,
and the rates paid on them, has been and will continue to be affected significantly by market
conditions.

The Federal Reserve Board requires all depository institutions to maintain non-interest
bearing reserves at specified levels against their transaction accounts, primarily checking, NOW
and Super NOW checking accounts.  At December 31, 2005, we were in compliance with these
reserve requirements.

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

|                                   | December 31,          
|---------------------------------- | ----------------------
|                                   | 2005                  
|                                   | Amount                
|                                   | (Dollars in Thousands)
|Transactions and Savings Deposits:
|Noninterest bearing accounts       | $ 43,466              
|Passbook accounts                  | 60,867                
|Interest-bearing NOW and          
|demand accounts                    | 68,710                
|Money market accounts              | 43,762                
|                                   |                       
|Total deposits                     | 216,805               
|                                   |                       
|Certificates:                      |                       
|0.00 -  1.99%                      | 41,718                
|2.00 -  3.99%                      | 224,985               
|4.00 -  5.99%                      | 199,625               
|6.00 -  7.99%                      | 1,421                 
|8.00 -  9.99%                      | ---                   
|10.00% and over                    | ---                   
|                                   |                       
|Total certificates                 | 467,749               
|Total deposits                     | $684,554              



The following table shows rate and maturity information for our certificates of deposit as of
December 31, 2005.

|                                                 | 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 quarter
ending:
|March 31, 2006                                   | $ 14,509               | $ 61,321   | $ 42,300   | $  871     | $119,001 | 25.44%         
|June 30, 2006                                    | 10,916                 | 47,528     | 27,257     | ---        | 85,701   | 18.32          
|September 30, 2006                               | 5,638                  | 33,453     | 10,103     | ---        | 49,194   | 10.52          
|December 31, 2006                                | 5,702                  | 17,947     | 5,518      | 510        | 29,677   | 6.34           
|March 31, 2007                                   | 1,438                  | 30,821     | 19,467     | ---        | 51,726   | 11.06          
|June 30, 2007                                    | 1,494                  | 6,264      | 16,596     | ---        | 24,354   | 5.21           
|September 30, 2007                               | 1,135                  | 1,490      | 9,216      | ---        | 11,841   | 2.53           
|December 31, 2007                                | 807                    | 7,687      | 3,701      | ---        | 12,195   | 2.61           
|March 31, 2008                                   | 73                     | 4,258      | 13,330     | ---        | 17,661   | 3.78           
|June 30, 2008                                    | ---                    | 2,336      | 1,648      | ---        | 3,984    | 0.85           
|September 30, 2008                               | 1                      | 2,046      | 3,533      | 30         | 5,610    | 1.20           
|December 31, 2008                                | 5                      | 1,888      | 6,048      | ---        | 7,941    | 1.70           
|Thereafter                                       | ---                    | 7,946      | 40,908     | 10         | 48,864   | 10.45          
|                                                 |                        |            |            |            |          |                
|Total                                            | $41,718                | $224,985   | $199,625   | $1,421     | $467,749 | 100.00%        
|                                                 |                        |            |            |            |          |                
|Percent of total                                 | 8.92%                  | 48.10%     | 42.68%     | 0.30%      | 100.00%  |                

The following table indicates, as of December 31, 2005, the amount of our certificates of deposit and other
deposits by time remaining until maturity.

|                                            | Maturity        |                 
|------------------------------------------- | --------------- | ----------------
|                                            | 3 Monthsor Less | Over3 to 6Months
|                                            | (In Thousands) 
|                                            |                 |                 
|Certificates of deposit less than $100,000  | $ 57,603        | $55,714         
|                                            |                 |                 
|Certificates of deposit of $100,000 or more | 27,988          | 22,299          
|                                            |                 |                 
|Public funds (1)                            | 33,408          | 7,689           
|                                            |                 |                 
|Total certificates of deposit               | $118,999        | $85,702         

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

***Borrowings*.**  Although deposits are our primary source of funds, we utilize borrowings
when they are a less costly source 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 borrowings historically have consisted of advances from the Federal
Home Loan Bank of Indianapolis and securities sold under agreement to repurchase.  See Note 9
of the Notes to Consolidated Financial Statements contained 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-backed securities.  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, 2005, we had $186.0 million in Federal
Home Loan Bank advances outstanding.  Based on current collateral levels we could borrow an
additional $100.5 million from the Federal Home Loan Bank at prevailing interest rates.  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 Condition
and Results of Operations - Liquidity and Commitments" contained in Item 7 of this Form 10-K.

We also are authorized to borrow from the Federal Reserve Bank of Chicago's "discount
window" after it has exhausted other reasonable alternative sources of funds, including Federal
Home Loan Bank borrowings.  We have never borrowed from our Federal Reserve Bank.

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,
|---------------- | -----------------------
|                 | 2005                   
|                 | (In Thousands)         
|Maximum Balance: |                        
|FHLB advances    | $186,008               
|Other borrowings | 2,146                  
|                 |                        
|Average Balance: |                        
|FHLB advances    | $151,184               
|Other borrowings | 1,995                  

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

|                                                      | December 31,          
|----------------------------------------------------- | ----------------------
|                                                      | 2005                  
|                                                      | (Dollars in Thousands)
|                                                      |                       
|FHLB advances                                         | $186,008              
|Other borrowings                                      | 1,784                 
|                                                      |                       
|Total borrowings                                      | $187,792              
|                                                      |                       
|Weighted average interest rate of FHLB advances       | 3.86%                 
|                                                      |                       
|Weighted average interest rate of other borrowings(1) | ---                   

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

**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 its assets, or $19.4 million at December 31, 2005,
in the stock of, or unsecured loans to, service corporation subsidiaries.  Mutual Federal may
invest an additional 1% of its assets in service corporations 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 required to 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 must be
controlled by Mutual Federal.

At December 31, 2005, Mutual Federal had one active subsidiary, First M.F.S.B.
Corporation, which is a service corporation.  The assets of First M.F.S.B. consists of an investment in Family Financial Holdings, Inc., which is an Indiana corporation that provides debt cancellation products to financial institutions.  As of December 31, 2005,
Mutual Federal's total investment in this subsidiary was $590,000.  For the year ended December
31, 2005, First M.F.S.B. reported no income or loss.

On January 25, 2003, *MutualFirst* purchased 26.9% of Indiana Title Insurance Co., LLC
("ITIC"), a full service title insurance company.  As of December 31, 2005, *MutualFirst*'s
investment in ITIC was $999,000.  For the year ended December 31, 2005, *MutualFirst* recorded
net income of $17,000 from ITIC, which consisted 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 loans comes primarily from other savings
institutions, commercial banks, credit unions and mortgage bankers.  Other savings institutions,
commercial banks, credit unions and finance companies provide vigorous 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 of account types at competitive rates.

**Employees**

At December 31, 2005, we had a total of 257 full-time and 50 part-time employees.  Our
employees are not represented by any collective bargaining group.  Management considers its
employee relations to be good.

**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 of laws 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 by which 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 will occur.

***MutualFirst***.  Pursuant to regulations of the Office of Thrift Supervision and the terms
of *MutualFirst*'s Maryland articles of incorporation, the purpose 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 regulatory
oversight 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 the Office
of Thrift Supervision.  In addition, the Office of Thrift Supervision has enforcement authority
over us and our non-savings institution subsidiaries.

*MutualFirst* generally is not subject to activity restrictions.  If *MutualFirst* acquired
control of another savings institution as a separate 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) would generally become subject to additional
restrictions.

If Mutual Federal fails the qualified thrift lender test, *MutualFirst* must obtain the
approval 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 or their 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.
The activities authorized for a bank holding company are more limited than the activities
authorized for a unitary or multiple thrift holding company.  See "- Qualified Thrift Lender Test."

**Mutual Federal**.  Mutual Federal, as a federally chartered savings institution, is subject
to federal regulation, periodic examination and oversight by the Office of Thrift Supervision
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 the
maximum extent permitted by law.  The investment and lending authority of federal savings
institutions are prescribed by federal laws and regulations, and federal 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 of depositors 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 of directors on any deficiencies that it may find in
Mutual Federal's operations.  When these examinations are conducted, the examiners may
require Mutual Federal to provide for higher general or specific loan loss reserves.  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 of savings accounts and the
form and content of Mutual Federal's mortgage requirements.  Any change in these laws and
regulations, could have a material adverse impact on our operations.  The Office of Thrift
Supervision also has extensive enforcement authority over all savings institutions and their
holding companies, including Mutual Federal and *MutualFirst*.

Mutual Federal's general permissible lending limit for loans-to-one-borrower is equal to
the greater of $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 and surplus).  At December 31, 2005, Mutual Federal's lending limit under
this restriction was $11.9 million.  Mutual Federal is in compliance with the loans-to-one-borrower limitation.

The Office of Thrift Supervision, as well as the other federal banking agencies, has
adopted guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal controls and audit
systems, interest rate risk 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 minimum level 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 a risk-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 Office of 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, as
defined by regulation.  Tangible capital generally includes common stockholders' equity and
retained income, and certain noncumulative perpetual preferred stock and related income.  In
addition, all intangible 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, 2005, Mutual Federal had $14.0 million of intangible assets.

At December 31, 2005, Mutual Federal had tangible capital of $65.1 million, or 6.8% of
adjusted total assets, which is approximately $50.7 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 capital generally 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 provisions discussed 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 to maintain a 3.0% ratio.  At December 31, 2005, Mutual Federal had $14.0
million of intangible assets, none of which qualified for inclusion in core capital.

At December 31, 2005, Mutual Federal had core capital equal to $65.1 million, or 6.8%
of adjusted total assets, which is $36.9 million above the minimum requirement of 4.0% in effect
on that date.

The Office of Thrift Supervision also requires savings institutions to have total capital of
at least 8.0% of risk-weighted assets.  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 qualify as 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 to the 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 of credit risk and the risk of non-traditional activities.
At December 31, 2005, Mutual Federal had $7.7 million of general loan loss reserves, which was
less than 1.25% of risk-weighted assets.

In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, will be multiplied by a 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 underwritten permanent 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 an insurer approved by Fannie Mae or Freddie Mac.

As of December 31, 2005, Mutual Federal had total risk-based capital of $72.8 million
and risk-weighted assets of $704.0 million; or total capital of 10.3% of risk-weighted assets.
This amount was $16.5 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 savings institutions 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 an institution 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 not make 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 it will 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 a risk-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 may cover 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 capital ratio 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 Thrift Supervision 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 critically undercapitalized.  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 or a receiver.

The Office of Thrift Supervision is also generally authorized to reclassify an institution
into a lower capital category and impose the restrictions 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 adverse effect 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 redemptions or 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 make capital 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 to be 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 in accordance with this
general authority.

Savings institutions proposing to make any capital distribution need not submit written
notice to the Office of Thrift Supervision prior to such 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 current minimum 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 such distribution.  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 their operations.
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 every 12 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,
2005, Mutual Federal met the test and has met the test since its effectiveness.

Any savings institution that fails to meet the qualified thrift lender test must convert to a
national bank charter, unless it requalifies as a 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 Insurance Fund-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 are limited 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 immediately ineligible 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 national bank 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 Federal Home 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 the failure, the holding
company must register as a bank holding company and become subject to all restrictions on bank
holding companies.

**Federal Taxation ****

***General.***** We are subject to federal income taxation in the same general manner as other
corporations, 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
comprehensive description 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* and Mutual Federal will file a consolidated federal income tax return for fiscal year
2005.

***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.

***Minimum Tax.***** The Internal Revenue Code imposes an alternative minimum tax at a rate
of 20% on a base of regular taxable 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 an exemption 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 tax liabilities 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 from Mutual 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 the case 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 incorporates federal 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, or incorporated 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 to these 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 forth below.

***John H. Bowles***.  Age 60 years.  Mr. Bowles is Senior Vice President of Investment and
Private Banking, a position he has held since November 2004.  Prior to 2004, he was president of
Star Financial Bank/NewCastle Region from 1987 to 2004.

***Steven R. Campbell***.  Age 62 years.  Mr. Campbell is Senior Vice President of Mutual
Federal's Corporate Products and Services Division, a position he has held since 1991. He has
been employed by Mutual Federal since 1984.

***Timothy J. McArdle***.  Age 55 years.  Mr. McArdle, a certified public accountant, has
served as Senior Vice President and Chief Financial Officer of Mutual 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 by Mutual Federal since 1981.

***Stephen C. Selby***.  Age 60 years.  Since 1995, Mr. Selby has served as Senior Vice
President of the Operations Division at 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.

***James. L. Widner***.  Age 56 years.  Mr. Widner is Vice President of Administration, a
position he has held since September 2005.  He was Vice President and Chief Operations Officer
of Fidelity Federal Savings Bank, Marion, Indiana, until it was acquired by Mutual Federal in
September 2005.

**Item 1A.  Risk Factors**

The following are certain risk factors that could impact our business, financial results
and results of operations.  Investing in our common stock involves risks, including those
described below.  These risk factors should be considered by prospective and current investors in
our common stock when evaluating the disclosures in this Annual Report on Form 10-K
(particularly the forward-looking statements.)  These risk factors could cause actual results and
conditions to differ materially from those projected in forward-looking statements.  If the risks
we face, including those listed below, actually occur, our business, financial condition or results
of operations could be negatively impacted, and the trading price of our common stock could
decline, which may cause you to lose all or part of your investment.

**Our loan portfolio possesses increased risk due to our substantial number of multi-family,
commercial real estate, consumer and commercial business loans.**

Approximately 43.3% of our loan portfolio as of December 31, 2005, consists of multi-family, commercial real estate, consumer and commercial business loans.  Multi-family and
commercial real estate loans accounted for approximately 9.9% of our total loan portfolio as of
December 31, 2005.  Our commercial business and consumer loans accounted, respectively, for
approximately 7.7% and 25.7% of our total loan portfolio as of December 31, 2005.  Generally,
we consider these types of loans to involve a higher degree of risk compared to first mortgage
loans on one- to four-family, owner-occupied residential properties.  In addition, we plan to
increase our emphasis on consumer, commercial real estate and commercial business lending.
Because of our planned increased emphasis on and increased investment in consumer,
commercial real estate and commercial business lending, it may become necessary to increase the
level of our provision for loan losses, which could decrease our net profits.  For further
information concerning the risks associated with multi-family, commercial real estate, consumer
loans and commercial business loans, see "Lending Activities" and "Asset Quality" in Item I.

**We plan to increase residential and commercial construction and development lending
activities, which will increase the risk in our loan portfolio.**

Our construction and development loan portfolio represented 2.7% of our total loan
portfolio at December 31, 2005.  Generally, we consider construction loans to involve a higher
degree of risk than one- to four-family residential loans, because funds are advanced on the
security of projects under construction and of uncertain value until completed.  We intend to
increase our residential and commercial construction lending, to the extent opportunities are
available in our market area and meet our underwriting criteria.  This increased emphasis on
construction lending, particularly on commercial projects, may require us to increase the level of
our provision for loan losses, which could decrease net profits.  For further information
concerning the risks associated with construction and development lending, see "Lending
Activities - Construction and Development Lending" and "- Asset Quality" in Item 1.

**Rising interest rates may hurt our profits.**

To be profitable, we have to earn more money in interest we receive on loans and
investments that we make than we pay to our depositors and lenders in interest.  If interest rates
rise, our net interest income and the value of our assets could be reduced if interest paid on
interest-bearing liabilities, such as deposits and borrowings, increases more quickly than interest
received on interest-earning assets, such as loans, other mortgage-related investments and
investment securities.  This is most likely to occur if short-term interest rates increase at a faster
rate than long-term interest rates, which would cause income to go down.  In addition, rising
interest rates may hurt our income, because they may reduce the demand for loans and the value
of our securities.  For a further discussion of how changes in interest rates could impact us, see
"Management's Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 and "Asset and Liability Management and Market Risk" in Item 7A.

**If economic conditions deteriorate, our results of operations and financial condition could
be adversely impacted as borrowers' ability to repay loans declines and the value of the
collateral securing our loans decreases.**

Our financial results may be adversely affected by changes in prevailing economic
conditions, including decreases in real estate values, changes in interest rates that cause a
decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies
of the federal government and other significant external events.  In addition, we have a significant amount of real estate loans.  Accordingly,
decreases in real estate values could adversely affect the value of collateral securing our loans.
Adverse changes in the economy may also have a negative effect on the ability of our borrowers
to make timely repayments of their loans.  In this regard, a substantial majority of our loans are to
individuals and businesses in north and central eastern Indiana.  These factors could expose us to
an increased risk of loan defaults and losses and have an adverse impact on our earnings.

**Strong competition within our market area may limit our growth and profitability.**

Competition in the banking and financial services industry is intense.  In our market area,
we compete with commercial banks, savings institutions, mortgage brokerage firms, credit
unions, finance companies, mutual funds, insurance companies, and brokerage and investment
banking firms operating locally and elsewhere.  Many of these competitors have substantially
greater resources and lending limits than we do and may offer certain services that we do not or
cannot provide.   Our profitability depends upon our continued ability to successfully compete in
our market.

**The amount of common stock we control, our articles of incorporation and bylaws, and
state and federal statutory provisions could discourage hostile acquisitions of control.**

Our board of directors and executive officers beneficially own 17.6% of our common
stock, and have additional stock options for 342,802 shares, which are exercisable within 60 days
of March 3, 2006.  In addition, our employee stock ownership plan controlled 9.6% of our
common stock at that date.  This inside ownership together with provisions in our articles of
incorporation and bylaws may have the effect of discouraging attempts to acquire *MutualFirst*,
pursue a proxy contest for control of *MutualFirst*, assume control of *MutualFirst* by a holder of a
large block of common stock and remove *Mutual First*'s management, all of which certain
stockholders might think are in their best interests.  These provisions include, among other
things: (a) staggered terms of the members of the board of directors; (b) an 80% shareholder vote
requirement for approval of any merger or consolidation of *MutualFirst* into any entity that
directly or indirectly owns 5% or more of *MutualFirst* voting stock if the transaction is not
approved in advance by at least a majority of the disinterested members of *MutualFirst**'s* board of
directors; (c) supermajority shareholder vote requirements for the approval of certain
amendments to *MutualFirst's* articles of incorporation and bylaws; (d) a prohibition on any
holder of common stock voting more than 10% of the outstanding common stock; (e) elimination
of cumulative

voting by stockholders in the election of directors; (f) restrictions on the
acquisition of our equity securities; and (g) the authorization of 5 million shares of preferred
stock that may be issued with stockholder approval on terms or in circumstances that could deter
a future takeover attempt.  As a Maryland corporation, we are subject to the Maryland business
corporation law, which contains certain restrictions on an acquisition of control of *MutualFirst*.
Furthermore, federal law requires regulatory approval of any acquisition of control of
*MutualFirst* and imposes limits on the types of companies that can control us.

**We operate in a highly regulated environment, and we may be adversely affected by
changes in laws and regulations.**

Mutual Federal is subject to extensive regulation, supervision and examination by the
Office of Thrift Supervision, its chartering authority, and by the FDIC.  *MutualFirst* also is
subject to regulation and supervision by the Office of Thrift Supervision.  This regulation and
supervision governs the activities in which we may engage, and are intended primarily for the
protection of the insurance fund and depositors. Regulatory authorities have extensive discretion
in their supervisory and enforcement activities, including the imposition of restrictions on our
operations, the classification of our assets and determination of the level of our allowance for
loan losses.  Any change in this regulation and oversight, whether in the form of regulatory
policy, regulations, legislation or supervisory action, may have a material impact on our
operations.

**Item 1B. Unresolved Staff Comments.**

None

**Item 2. Description of Property**

At December 31, 2005, we had 20 full service offices.  We own the office building in
which our home office and executive offices are located.  At December 31, 2005, 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 $13.0 million****at
December 31, 2005.  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, 2005, the net book value of the data
processing and computer equipment utilized by us was $1.2 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 not anticipate 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, 2005.

**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 below shows the high and low closing prices for our
common stock for the periods indicated.  This information was provided by the Nasdaq.  At
March 2, 2006, there were 4,545,000 shares of common stock issued and outstanding and
approximately 1,300 shareholders of record.

|                                |             |                    
|------------------------------- | ----------- | -------------------
|                                | Stock Price | Dividends per Share
|**Quarter Ending:**             | High        | Low                
|                               
|First Quarter (ended 03/31/05)  | $24.91      | $22.75             
|Second Quarter (ended 06/30/05) | $23.25      | $21.50             
|Third Quarter (ended 09/30/05)  | $23.20      | $21.65             
|Fourth Quarter (ended 12/31/05) | $22.30      | $21.10             
|                                |             |                    
|                                |             |                    
|                                | Stock Price | Dividends per Share
|**Quarter Ending:**             | High        | Low                
|                               
|First Quarter (ended 03/31/04)  | $25.93      | $24.01             
|Second Quarter (ended 06/30/04) | $24.40      | $21.49             
|Third Quarter (ended 09/30/04)  | $24.41      | $21.52             
|Fourth Quarter (ended 12/31/04) | $24.85      | $23.50             
|                                |             |                    

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

On December 22, 2004, the Company's Board of Directors authorized management to
repurchase an additional 10% of the Company's outstanding stock, or approximately 471,000
shares over a twelve-month period.  Information on the shares purchased during the fourth
quarter of 2005 is as follows:

|                                     | Total Number ofShares Purchased | Average PricePer Share | Total Number ofShares PurchasedAs Part of Publicly
Announced Plan | Maximum Number ofShares that May YetBe Purchased
Under the Plan
|------------------------------------ | ------------------------------- | ---------------------- | ----------------------------------------------------------------- | ---------------------------------------------------------------
|                                     |                                 |                        |                                                                   |                                                                
|October 1, 2005 - October 31, 2005   | ---                             | $     ---              | ---                                                               | 334,569(1)                                                     
|November 1, 2005 - November 30, 2005 | 20,000                          | 21.70                  | 20,000                                                            | 334,569                                                        
|December 1, 2005 - December 31, 2005 | 10,000                          | 21.91                  | 10,000                                                            | 314,569                                                        
|                                     | 30,000                          | $21.77                 | 30,000                                                            | 304,569                                                        
|                                     |                                 |                        |                                                                   |                                                                

|**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 consolidated financial statements and accompanying notes contained in this Annual Report.

|                                                    | **At or For the Year Ended December 31,**
|--------------------------------------------------- | -----------------------------------------
|                                                    | **2005**                                 
|                                                    | **(In Thousands)**                       
|Selected Financial Condition Data                  
|                                                   
|Total Assets                                        | $971,829                                 
|Cash and cash equivalents                           | 22,365                                   
|Loans, net                                          | 822,547                                  
|Investment Securities:                             
|Available-for -sale, at fair value                  | 39,788                                   
|Total  deposits                                     | 684,554                                  
|Total borrowings                                    | 187,791                                  
|Total stockholders' equity                          | 88,794                                   
|                                                    |                                          
|Selected Operations Data                           
|                                                    |                                          
|Total interest income                               | $48,478                                  
|Total interest expense                              | 21,170                                   
|Net interest income                                 | 27,308                                   
|Provision for loan losses                           | 1,775                                    
|Net interest income after provision for loan losses | 25,533                                   
|Service fee income                                  | 4,026                                    
|Gain on sale of loans and investment securities     | 228                                      
|Other non-interest income                           | 2,478                                    
|Total non-interest income                           | 6,732                                    
|Salaries and employee benefits                      | 13,792                                   
|Other expenses                                      | 9,620                                    
|Total non-interest expense                          | 23,412                                   
|Income before taxes                                 | 8,853                                    
|Income tax expense                                  | 2,401                                    
|Net income                                          | $  6,452                                 

|                                                                                       | **At or For the Year Ended December 31,**
|-------------------------------------------------------------------------------------- | -----------------------------------------
|                                                                                       | **2005**                                 
|Selected Financial Ratios and Other Financial Data:                                   
|                                                                                      
|Performance Ratios:                                                                   
|Return on average assets (ratio of net income
      to average total assets)           | 0.73%                                    
|Return on average tangible equity (ratio of net income 
      to average equity)       | 7.79                                     
|Interest rate spread information:                                                     
|Average during the period                                                              | 3.13                                     
|Net interest margin(1)                                                                 | 3.37                                     
|Ratio of operating expense to average total assets                                     | 2.89                                     
|Ratio of average interest-earning assets to average
      interest-bearing liabilities | 109.30                                   
|Efficiency ratio(2)                                                                    | 68.78                                    
|                                                                                       |                                          
|Asset Quality Ratios: (3)                                                             
|Non-performing assets to total assets                                                  | 1.03                                     
|Non-performing loans to total loans                                                    | 0.90                                     
|Allowance for loan losses to non-performing loans                                      | 108.04                                   
|Allowance for loan losses to loans  receivable, net                                    | 0.98                                     
|                                                                                       |                                          
|Capital Ratios:                                                                       
|Equity to total assets(3)                                                              | 9.14                                     
|Average equity to average assets assets                                                | 9.90                                     
|                                                                                       |                                          
|Share and Per Share Data:                                                             
|Average common shares outstanding:                                                    
|Basic                                                                                  | 4,328,965                                
|Diluted                                                                                | 4,439,686                                
|Per share:                                                                            
|Basic earnings                                                                         | $1.49                                    
|Diluted earnings                                                                       | $1.45                                    
|Dividends                                                                              | $0.49                                    
|Dividend payout ratio (4)                                                              | 36.55%                                   
|                                                                                      
|Other Data:                                                                           
|Number of full-service offices                                                         | 20                                       

__________________
(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)  At the end of the period.
(4)  Dividends per share divided by diluted earnings per share.

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

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

**Introduction**

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

On September 16, 2005, Mutual Federal purchased certain assets totaling $118.1 million
and assumed certain liabilities totaling $97.8 million representing the operations of Fidelity
Federal Savings Bank ("Fidelity") located in Marion, Indiana for $20 million in cash.  The assets
purchased included residential real estate mortgage loans of $59.3 million, consumer loans of
$8.4 million, commercial and construction loans of $14.5 million.  The liabilities assumed
included total deposits of $75.9 million (including $23.5 million core savings and transaction
accounts) and Federal Home Loan Bank advances of $20.5 million.

Our principal business consists of attracting retail deposits from the general public and
investing those funds primarily in permanent loans secured by first mortgages on owner-occupied, one-to-four-family residences,  a variety of consumer loans, loans secured by
commercial and multi-family real estate and commercial business loans. We are headquartered in
Muncie, Indiana with 20 retail offices primarily serving Delaware, Randolph, Kosciusko, and
Grant counties in Indiana.  We also originate mortgage loans in contiguous counties, and we
originate indirect consumer loans throughout Indiana.

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

Our results of operations depend primarily on the level of our net interest income, which
is the difference between interest income on interest-earning assets, such as loans, mortgage-backed securities and investment securities, and interest expense on interest-bearing liabilities,
primarily deposits and borrowings.  The structure of our interest-earning assets versus the
structure of interest-bearing liabilities along with the shape of the yield curve has a direct impact

on our net interest income.  Historically, our interest-earning assets have been longer term in
nature (i.e., fixed-rate mortgage loans) and interest-bearing liabilities have been shorter term (i.e.,
certificates of deposit, regular savings accounts, etc.).  This structure would impact net interest
income favorably in a decreasing rate environment, assuming a normally shaped yield curve, as
the rates on interest bearing liabilities would decrease more rapidly than rates on the interest
earning assets.  Conversely, in an increasing rate environment, assuming a normally shaped yield
curve, net interest income would be impacted unfavorably as rates on interest earning assets
would increase at a slower rate than rates on interest bearing liabilities.

Since 2000 it has been *MutualFirst*'s strategic objective to change the repricing structure
of its interest-earning assets from longer term to shorter term to better match the structure of our
interest bearing liabilities and therefore reduce the impact interest rate changes have on our net
interest income.  Strategies employed to accomplish this objective have been to increase the
originations of variable rate commercial loans and shorter term consumer loans and to sell longer
term mortgage loans.

During 2005, in keeping with its strategic objective to reduce interest rate risk exposure,
*MutualFirst* also sold $13.5 million of long term fixed rate loans that had been held for sale,
which reduced potential earning assets and therefore had a negative impact on net interest
income.  This was offset, in the short term, by recognizing a gain on the sale of these loans of
$228,000 during the year.

Recent increases in short-term interest rates, as a result of increases in the Federal Funds
rate by the Board of Governors of the Federal Reserve System, without a corresponding increase
in long-term interest rates have resulted in an increase in interest expense and a reduction in net
interest income in 2005.  The effect of the flattening yield curve is to increase our cost of funds at
a faster rate than our yield on loans and investments, due to the longer-term nature of our interest
earning assets.  In 2005, as we increase our investment in business-related loans, which are
considered to entail greater risks than one- to four-family residential loans, in order to help offset
the pressure on our net interest margin, our provision for loan losses has increased to reflect this
increased risk.

Our results of operations also are affected by the level of our non-interest income and
expenses and income tax expense.  Results of operations also depend upon the level of
*MutualFirst*'s non-interest income, including fee income and service charges, and the level of its
non-interest expense, including general and administrative expenses.  In addition to the Fidelity
acquisition, we are expanding through the addition of a new branch office located in Syracuse,
Indiana in Kosciusko County, which opened in June 2005.  We have purchased land in Elkhart
County, in northern Indiana, for the purpose of building a new branch office in that vibrant
market in 2006.  We also have developed a new Investment Management and Private Banking
Division in order to better service clients with more specialized financial needs.  The intent of all
these initiatives is to increase income over the long term.  However, on a short term basis,
expenses relating to the new branches and new division will have the affect of increasing non-interest expense with no immediate offsetting income.  The purchase of Fidelity (referred to
above) was accretive to income in the fourth quarter due to substantial cost savings.

**Management Strategy**

Our strategy is to operate as an independent, retail oriented financial institution dedicated
to serving customers in our market areas.  Our commitment is to provide a broad range of
products and services to meet the needs of our customers.  As part of this commitment, we are
looking to increase our emphasis on commercial business products and services.  We 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 2000 approximately 36% of our loan portfolio consisted of loans other
> than one-to four- family real estate loans.  Since that time to the end of 2005,
> that percentage has increased to 46%.*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 2005, we originated $107.8 million of one- to four- family
> residential loans.***Continuing To Focus On Asset Quality.***  Non-performing assets to total assets
> was 1.03% at December 31, 2005, up from .65% at December 31, 2004.  We
> believe this increase is temporary and the trend is mitigated because a significant
> portion of the increase is due to a $1.9 million loan on which management
> expects to incur no loss due to collateral value.   We are confident that our
> underwriting standards will continue to provide for a quality loan portfolio.***Continuing Our Strong Capital Position.*****  As a result of our consistent
> profitability, we have historically maintained a strong capital position.  At
> December 31, 2005, our ratio of stockholders' equity to total assets was 9.1%.

**Financial Condition at December 31, 2005 Compared to December 31, 2004**

**General.**  Our assets increased $132.4 million during 2005, ending the year at $971.8
million compared to $839.4 million at December 31, 2004, primarily due to the acquisition of the
assets from Fidelity.  Liabilities increased $131.5 million or 17.5% primarily due to the
assumption of deposits and borrowings of Fidelity.  Stockholders' equity increased to $88.8
million at December 31, 2005, when compared to December 31, 2004, as net income, employee
benefits earned and stock options exercised of $8.0 million were partially offset by stock
repurchases and dividends of $7.1 million.

**Loans**.  Our net loan portfolio increased $109.5 million from $713.0 million at
December 31, 2004, to $822.5 million at December 31, 2005 primarily because of the Fidelity
acquisition.  Consumer loans increased $19.5 million or 10.0% from $195.5 million at December
31, 2004 to $215.0 million at December 31, 2005.  Most of the consumer loan growth came from
home equity and home improvements loans, which increased $11.1 million or 21.1% from $52.8
million to $63.9 million and recreational vehicle loans, which increased $5.6 million or 9.5%
from $58.6 million to $64.2 million.  Commercial business loans increased $10.7 million or
20.0% from $53.6 million to $64.4 million at December 31, 2005. It has been our strategy to
increase non-real estate mortgage loans as a percentage of our loan portfolio in order to mitigate
interest rate risk and enhance the portfolio yield. Accordingly, we sold $13.5 million of our fixed
rate one- to four- family mortgage loans in 2005.  Real estate mortgage loans increased $79.4
million or 16.7% from $476.2 million to $555.6 million at December 31, 2005. Mortgage loans
held for sale decreased $891,000.

**Allowance For Loan Loss.**  The allowance for loan losses increased $1.2 million to $8.1
million at December 31, 2005.  This increase included additional reserves of $1.6 million
acquired with the Fidelity purchase and assumption.  Net charge offs for the year were $2.2
million or .29% of average loans compared to $1.5 million or .21% of average loans in 2004.
The increase in the allowance for loan losses is due to continued poor economic conditions in
some of our markets and increases in loan balances.  In addition, the Bank charged off a
$240,000 commercial business loan to a distribution center that failed and the collateral
(accounts receivable) have proven to be uncollectible.  The Bank also charged off $720,000 of a
debt extended to a construction company that failed.  The Bank is pursuing collection of this debt
through litigation.  The amount and potential likelihood of recovery is unknown at this time.  As
of December 31, 2005 allowance for loan losses as a percentage of loans receivable and non-performing loans was .98% and 108.0%, respectively.

**Securities.**  Investment securities totaled $39.8 million at December 31, 2005 compared
to $39.4 million at December 31, 2004, a 1.0% increase.  This small increase was primarily due
to our loan growth outpacing our deposit growth during the year.  Our overall liquidity decreased
during the year due to the flatness of the yield curve and the resultant lack of profitable
investment opportunities compared to funding costs.

**Liabilities.**  Our total liabilities increased $131.5 million or 17.5% to $883.0 million at
December 31, 2005 from $751.5 million at December 31, 2004.  This increase was due primarily

to the assumption of substantially all of Fidelity's liabilities.  Deposits increased $84.1 million,
and borrowed funds increased $46.2 million.

**Stockholders' Equity.**  Stockholders' equity increased $933,000 from $87.9 million at
December 31, 2004 to $88.8 million at December 31, 2005.  This increase in stockholders' equity
is the result of $6.5 million in net income, earned Employee Stock Ownership Plan shares of
$724,000, earned tax-affected restricted stock shares of $412,000 and exercised stock options of
$759,000, which were partially offset by the repurchase of 209,000 shares of our common stock
for $4.8 million and dividend payments of $2.3 million.  Also, the market value of securities
available for sale compared to their book value decreased $286,000 from a loss of $89,000 at
December 31, 2004 to a loss of $374,000 at December 31, 2005.

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

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

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

|                                                  | Year ended December 31,  
|------------------------------------------------- | -------------------------
|                                                  | 2005                     
|                                                  | AverageOutstandingBalance
|                                                  | (Dollars in thousands)   
|Interest-Earning Assets:                         
|Interest -bearing deposits                        | $   1,774                
|Mortgage-backed securities available-for-sale (1) | 10,890                   
|Investment securities available-for-sale (1)      | 29,591                   
|Loans (2)                                         | 759,307                  
|Stock in FHLB of Indianapolis                     | 8,749                    
|Total interest-earning assets                     | 810,311                  
|Non-Interest Earning Assets (net of allowance    
|for loan losses and unrealized gain/loss)         | 74,577                   
|Total assets                                      | $884,888                 
|                                                 
|Interest-Bearing Liabilities:                    
|Demand and NOW accounts                           | $  62,545                
|Savings deposits                                  | 61,301                   
|Money market accounts                             | 49,439                   
|Certificate accounts                              | 422,107                  
|Total deposits                                    | 595,392                  
|Borrowings                                        | 145,979                  
|Total interest-bearing accounts                   | 741,371                  
|Non-Interest Bearing Accounts                     | 41,744                   
|Other Liabilities                                 | 14,206                   
|Total Liabilities                                 | 797,321                  
|Stockholders' Equity                              | 87,567                   
|Total liabilities and stockholders' equity        | $884,888                 
|Net Earning Assets                                | $ 68,940                 
|Net Interest Income                               |                          
|Net Interest Rate Spread (3)                      |                          
|Net Yield on Average Interest-Earning Assets (4)  |                          
|Average Interest-Earning Assets to               
|Average Interest-Bearing Liabilities              | 109.30%                  

|(1) | Average balances were calculated using amortized cost, which excludes FASB 115 valuation allowances.                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Calculated net of deferred loan fees, loan discounts and loans in process.                                                                                                   
|(3) | Interest rate spread is calculated by subtracting weighted average interest rate cost from weighted average interest rate yield for the period indicated.                    
|(4) | The net yield on weighted average interest-earning assets is calculated by dividing net interest income by weighted average interest-earning assets for the period indicated.

**Rate/Volume Analysis**

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

|                                   | Year Ended December 31, 
|---------------------------------- | ------------------------
|                                   | 2005 vs. 2004           
|                                   | Increase(decrease)Due to
|                                   | Rate                    
|                                   | (Dollars in thousands)  
|Interest-earning assets:          
|Interest-bearing deposits          | $   (25)                
|Investment securities:            
|Available-for-sale                 | 190                     
|Loans receivable                   | 3,143                   
|Stock in FHLB of Indianapolis      | 54                      
|                                   |                         
|Total interest-earning assets      | $3,362                  
|                                   |                         
|Interest-bearing liabilities:     
|Savings deposits                   | $       0               
|Money market accounts              | (48)                    
|Demand and NOW accounts            | 14                      
|Certificate accounts               | 1,550                   
|Borrowings                         | 625                     
|Total interest-bearing liabilities | $2,141                  
|Change in net interest income      |                         

**Comparison of Results of Operations for Years Ended December 31, 2005 and 2004.**

******General.**  Net income for the year ended December 31, 2005 increased $930,000 or
16.8% to $6.5 million compared to $5.5 million for the year ended December 31, 2004.  Diluted
earnings per share increased 25.0% from $1.16 in 2004 to $1.45 in 2005 primarily due to one
time expenses in 2004 associated with a separation agreement.  The Company's earnings for
2004 would have been $7.2 million ($1.51 for diluted earnings per share) without the one time
expenses.  The primary reasons for the decline, when comparing net income for 2005 to
normalized 2004, was a decreasing interest margin due to a flat yield curve and increased
operating expenses due to costs related to current and future growth of the Company.

******Net Interest Income.**  Net interest income increased $384,000 for the year ended
December 31, 2005, compared to the year ended December 31, 2004.  The primary reason for the
improvement was a $55.5 million, or 7.4% increase in average interest-earning assets, primarily
due to the Fidelity purchase, partially offset by a 20 basis point decrease in the net interest margin
reflecting the Bank's liability sensitive nature, as short-term interest rates rose.

******Interest Income.**  The increase in interest income during the year ended December 31,
2005, was due to an increase in the average yield on our earning assets from 5.88% in 2004 to
5.98% in 2005 as a result of increasing market interest rates.  This increase was enhanced by a
$55.5 million increase in average earning assets from $754.8 million during 2004 to $810.3
million during 2005.  The majority of this increase was in average loans receivable due to the
Fidelity acquisition, which increased $51.5 million from $707.8 million in 2004 to $759.3
million in 2005.  The average yield on these loans increased 6 basis points from 6.05% in 2004 to
6.11 % in 2005.

******Interest Expense.**  The increase in interest expense was due to an increase in interest
rates and an increase in average interest-bearing liabilities during the year.  There was a 28 basis
point increase in the cost of our average interest-bearing liabilities from 2.58% in 2004 to 2.86%
in 2005 as a result of higher market interest rates and an increase of $65.2 million in average
interest-bearing liabilities from $676.2 million in 2004 to $741.4 million in 2005 as a result of
the assumption of deposits and borrowings of Fidelity.  The majority of this increase was in
average deposits, which increased $49.6 million from $545.8 million in 2004 to $595.4 million
in 2005.  The average cost on these deposits increased 31 basis points from 2.26% in 2004 to
2.57% in 2005.

******Provision for Loan Losses.**  The provision for loan losses for 2005 was $1.8 million,
compared to $1.6 million for 2004 due to the increased loan balances, higher net charge-offs in
2005 compared to 2004 and higher non-performing loans at the end of the year compared to a
year ago.  Non-performing loans to total loans at December 31, 2005 were .90% compared to
..55% at December 31, 2004.  Non-performing assets to total assets were 1.03% at December 31,
2005 compared to .64% at December 31, 2004.  These increases were primarily due to a $1.9
million residential real estate loan secured by a first mortgage being over 90 days past due.
Management is confident that the collateral is more than enough to cover the debt.  Also, a
$384,000 commercial real estate loan that was performing as of the end of the third quarter
defaulted in October and the collateral was taken into REO in December.  In addition, several
troubled residential real estate loans totaling $646,000 were taken into REO in the fourth quarter.
Only one of these loans, totaling $85,000 was related to the Fidelity purchase.  Potential losses
on these properties are yet to be determined.

******Other Income.**  For the year ended December 31, 2005, non-interest income increased
$509,000 or 8.2% to $6.7 million compared to $6.2 million for 2004.  The increase was due
primarily to an $833,000 or 26.1% increase in service fee income due primarily to more checking
accounts, the overdraft privilege program and a $128,000 or 15.0% increase in commission
income due to increased annuity sales.  These increases were partially offset by a $420,000
reduction in the gain on sale of loans due to reduced mortgage refinancing activity in 2005 and a

$109,000 reduction in other income due primarily to reduced gain on the sale of real estate
owned.

******Other Expense.**  Non-interest expense increased $1.9 million or 9.0% to $23.4 million
for the year ended December 31, 2005, compared to $21.5 million (excluding the $2.8 million
one time expense) for 2004.  The increase was due primarily to increased salaries and employee
benefits costs and increased occupancy and equipment expenses that were up due to costs related
to the purchase of Fidelity in September 2005 and a new office opening in June 2005 in
Syracuse, Indiana.  Also, we relocated our corporate and investment management and private
banking staffs to a recently purchased office building located next to our main office in Muncie.
Data processing fees increased $192,000 due to the purchase of Fidelity, the addition of the new
offices and the expiration of several contractual credits from our service provider received in
2004 and not in 2005.  Professional fees increased due to increases in legal and accounting
services primarily related to regulatory compliance requirements and increased consulting fees
related to the overdraft protection program.  A portion of these fees are one time in nature.  Other
expenses increased due to costs related to REO and other general and administrative expense
increases related to the Fidelity purchase.  The Board of Directors acted to accelerate the vesting
of all outstanding options to December 31, 2005 in accordance with FAS123R.  As a result, there
will be no expense associated with these options in future years.

******Income Tax Expense.**  Income tax expense increased $648,000 for the year ended
December 31, 2005 compared to 2004 due to more taxable income.  The effective tax rate
increased from 24.1% to 27.1% due to a decreased percentage of low income housing tax credits
to taxable income when comparing 2005 to 2004.

**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 million compared 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 a separation 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 diluted earnings per share) without the one time
expenses.

**Net Interest Income.**  Interest income decreased $2.0 million, or 4.4% to $44.4 million
for the year ended December 31, 2004 from $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 ended December 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 lower volume 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 assets decreased 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 the average 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 $23.4 million 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 interest bearing 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 bearing liabilities 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 million in 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 million compared 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 our portfolio 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 loans and 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 the year 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 the non-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. These changes 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 smaller increase 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 similar event occurring in 2004.

**Other Expense.**  Total operating expenses increased $3.8 million or 18.8% from $20.5
million for the year ended 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 for 2004 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 agreement mentioned 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% due primarily 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. The decrease was due primarily to decreased taxable
income. The effective tax rate decreased from 29.3% to 24.1% when comparing 2003 and 2004,
respectively.

**Liquidity and Commitments**

Mutual Federal is required to maintain adequate levels of investments for liquidity
purposes to ensure the institution's safe and sound operations.  Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on investments in relation to the
return on loans.  Historically, we have maintained liquid assets at levels adequate to meet the
requirements of normal operations, including potential deposit outflows.  Cash flow projections
are regularly reviewed and updated to ensure that adequate liquidity is maintained.  At December
31, 2005, our liquidity ratio, which is our liquid assets as a percentage of net withdrawable
savings deposits and current borrowings, was 6.76%.

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

Liquidity management is both a daily and long-term function of business management.
Excess liquidity is generally invested in short-term investments such as overnight deposits or
U.S. Agency securities.  We use our sources of funds primarily to meet our ongoing
commitments, to pay maturing certificates of deposit and savings withdrawals, to fund loan
commitments and to maintain our portfolio of mortgage-backed securities and investment
securities.  At December 31, 2005, the total approved loan origination commitments outstanding
amounted to $18.9 million.  At the same date, the unadvanced portion of construction loans was
$6.3 million.  At December 31, 2005, unused lines of credit totaled $46.1 million and
outstanding letters of credit totaled $7.2 million.  As of December 31, 2005, certificates of
deposit scheduled to mature in one year or less totaled $283.6 million, and investment and
mortgage-backed securities scheduled to mature in one year or less totaled $16.2 million.  Based
on historical experience, management believes that a

significant portion of maturing deposits will
remain with us.  We anticipate that we will continue to have sufficient funds, through deposits
and borrowings, to meet our current commitments. The following table presents our contractual
obligations (excluding deposit products).



|                        |  | Payments due by period
|----------------------- |  | ----------------------
|                        |  |                       
|                        |  | Total                 
|Contractual Obligations
|                        |  |                       
|FHLB Advances           |  | $186,008              
|Notes Payable           |  | 1,784                 
|                        |  |                       
|Total                   |  | $187,792              

**Capital**

Consistent with our goals to operate a sound and profitable financial organization,
Mutual Federal actively strives to remain a "well capitalized" institution in accordance with
regulatory standards.  Total stockholders' equity of *MutualFirst* Financial, Inc. was $88.8 million
at December 31, 2005, or 9.1% of total assets on that date.  As of December 31, 2005, Mutual
Federal exceeded all capital requirements of the Office of Thrift Supervision, with regulatory
capital ratios as follows:  core capital, 6.8%; Tier I risk-based capital, 9.2%; and total risk-based
capital, 10.3%.  The regulatory capital requirements to be considered well capitalized are 5.0%,
6.0% and 10.0%, respectively.

**Pending Accounting Pronouncements**

**Shared-Based Payment*.*****In December 2004, the FASB issued SFAS No. 123, Revised,
Share-Based Payment (SFAS 123(R)), which requires all public companies to record
compensation cost for stock options and other awards provided to employees in return for
employee service. The cost of the options is measured at the fair value of the options when
granted and is expensed over the employee service period, which is normally the vesting period
of the options granted.  The Company adopted SFAS 123(R) on January 1, 2006.  Future
compensation cost and the impact on the Company's results of operation as a result of any future
option grants will depend on the level of any future option grants, the related vesting period, and
the calculation of the fair value of the options granted as of the grant date.  As such, the
Company cannot currently estimate compensation expense relating to future awards.  The
adoption of SFAS No. 123(R) is not expected to have a significant impact on the Company's
financial condition or results of operations***.***

**The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments.**  In January 2003, the Emerging Issues Task Force (EITF) began a project
to provide additional guidance on when a market value decline on debt and marketable equity
securities should be considered other-than-temporary.  Currently, declines in market value that
are considered to be other-than-temporary require that a loss be recognized through the income
statement.  In March 2004, the FASB ratified the consensus****reached by the EITF in Issue 03-1,
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments

(EITF 03-1). EITF 03-1 provides guidance for determining when an investment is considered
impaired, whether impairment is other-than-temporary, and measurement of an impairment loss.
In September 2004, the FASB issued a staff position (FSP 03-1-1) which delayed the effective
date for the measurement and recognition guidance of EITF 03-1 due to additional proposed
guidance.

In June 2005, the FASB decided not to provide additional guidance on the meaning of
other-than-temporary impairment, but directed the FASB staff to issue a FASB Staff Position
(FSP) titled FSP 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments.   The final FSP supersedes EITF 03-1 and EITF Topic No. D-44,
Recognition of Other-Than-Temporary Impairment Upon the Planned Sale of a Security Whose
Cost Exceeds Fair Value.   FSP FAS 115-1 replaces guidance in EITF 03-1 on loss recognition
with references to existing other-than-temporary impairment guidance, such as FASB Statement
No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115).
FSP FAS 115-1 also clarifies that an investor should recognize an impairment loss no later than
when the impairment is deemed other-than-temporary, even if a decision to sell has not been
made.

FSP FAS 115-1 was effective for other-than-temporary impairment analysis conducted in
periods beginning after September 15, 2005.  The Company has consistently followed the loss
recognition guidance in SFAS No. 115, so the adoption of FSP FAS 115-1 did not have a significant
impact on the Company's financial condition or results of operations.

**Earnings Per Share.**  On September 30, 2005, the FASB issued a proposed amendment
to SFAS No. 128, Earnings per Share, to clarify guidance for mandatorily convertible
instruments, the treasury stock method, contingently issuable shares, and contracts that may be
settled in cash or shares.  The primary impact on the Company of the proposed Statement would
be a change to the treasury stock method for year-to-date diluted earnings per share.

**Critical Accounting Policies**

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

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

**Allowance for Loan Losses**

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

**Foreclosed Assets**

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

**Mortgage Servicing Rights****

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

********Intangible Assets****

*MutualFirst* periodically assesses the impairment of its goodwill and the recoverability
of its core deposit intangible.  Impairment is the condition that exists when the carrying amount
of goodwill exceeds its implied fair value.  If actual external conditions and future operating
results differ from *MutualFirst'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 require the measurement of financial position and
operating results in terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.

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

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

********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 is established contractually for a period of time.  Market interest rates
change over time.  Accordingly, our results of operations, like those of other financial
institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets
and liabilities.  The risk associated with changes in interest rates and our ability to adapt to these
changes is known as interest rate risk and is our most significant market risk.

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

In order to minimize the potential for adverse effects of material and prolonged changes
in interest rates on our results of operations, we adopted asset and liability management policies
to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities.  Mutual Federal's Board of Directors sets and recommends asset and liability
policies, which are implemented by the asset and liability management committee.  The Asset
and Liability Management Committee is chaired by the chief financial officer and is comprised
of members of our senior management.  The purpose of the Asset and Liability Management
Committee is to communicate, coordinate and control asset/liability management issues
consistent

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

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

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

Depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Asset and Liability
Management Committee may increase our interest rate risk position somewhat in order to
maintain our net interest margin.  We intend to increase our emphasis on the origination of
relatively short-term and/or adjustable rate loans.  In addition, in an effort to avoid an increase in
the percentage of long-term fixed-rate loans in our portfolio, in 2005, we sold $13.5 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 rate environments on net interest income and market
value of portfolio equity, which is defined as the net present value of an institution's existing
assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the
maximum potential changes in net interest income and market value of portfolio equity that are
authorized by our board of directors.

The Office of Thrift Supervision provides Mutual Federal with the information presented
in the following tables.  The tables present the change in our net portfolio value at December 31,
2005 and 2004 that would occur upon an immediate and sustained change in market interest rates
of 100 to 300 basis points as required by the Office of Thrift Supervision, and do not give any

effect to actions that management might take to counteract that change.  The changes in net
portfolio value under all rate changes shown were within guidelines approved by the board of
directors.

|**December 31, 2005Net Portfolio Value**
|----------------------------------------
|ChangesIn Rates                         
|$ Amount                                
|                                        
|+300 bp                                 
|+200 bp                                 
|+100 bp                                 
|0 bp                                    
|-100 bp                                 
|-200 bp                                 
|-300 bp                                 
|****                                    
|**December 31, 2004Net Portfolio Value**
|ChangesIn Rates                         
|$ Amount                                
|                                        
|+300 bp                                 
|+200 bp                                 
|+100 bp                                 
|0 bp                                    
|-100 bp                                 
|-200 bp                                 
|-300 bp                                 

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

The Office of Thrift Supervision uses certain assumptions in assessing the interest rate
risk of savings banks.  These assumptions relate to interest rates, loan prepayment rates, deposit
decay rates, and the market value of certain assets under differing interest rate scenarios, among
others.

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

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

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

Accountants' Report and Consolidated Financial Statements

December 31, 2005, 2004 and 2003

**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, 2005 and 2004, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance 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
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe 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,
2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in
the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of *MutualFirst* Financial, Inc.'s internal
control over financial reporting as of December 31, 2005 based on criteria established in *Internal Control-Integrated Framework* issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated February 3, 2006 expressed unqualified opinions on management's assessment and on the effectiveness of the Company's internal control over financial
reporting.



Indianapolis, Indiana
February 3, 2006

***MutualFirst* Financial, Inc.**

**Consolidated Balance Sheets
December 31, 2005 and 2004**

|                                                                                                                                          | **2005**      | **2004**     
|----------------------------------------------------------------------------------------------------------------------------------------- | ------------- | -------------
|**Assets**                                                                                                                                |               |              
|Cash and due from banks                                                                                                                   | $ 20,481,168  | $ 19,275,332 
|Interest-bearing demand deposits                                                                                                          | 1,883,415     | 468,044      
|Cash and cash equivalents                                                                                                                 | 22,364,583    | 19,743,376   
|Interest-bearing deposits                                                                                                                 | 293,000       | --           
|Investment securities available for sale                                                                                                  | 39,787,608    | 39,408,978   
|Loans held for sale                                                                                                                       | 2,022,390     | 2,913,150    
|Loans, net of allowance for loan losses of $8,100,000 and $6,867,000                                                                      | 822,547,365   | 713,021,688  
|Premises and equipment                                                                                                                    | 14,169,464    | 12,191,117   
|Federal Home Loan Bank stock                                                                                                              | 10,124,700    | 7,957,700    
|Investment in limited partnerships                                                                                                        | 4,605,898     | 5,025,378    
|Deferred income tax benefit                                                                                                               | 3,817,287     | 4,003,199    
|Cash value of life insurance                                                                                                              | 28,045,357    | 27,090,357   
|Goodwill                                                                                                                                  | 12,926,858    | 808,106      
|Other assets                                                                                                                              | 11,124,788    | 7,224,208    
|Total assets                                                                                                                              | $ 971,829,298 | $ 839,387,257
|**Liabilities and Stockholders' Equity**                                                                                                  |               |              
|**Liabilities**                                                                                                                           |               |              
|Deposits                                                                                                                                  |               |              
|Noninterest-bearing                                                                                                                       | $ 43,466,048  | $ 39,999,427 
|Interest-bearing                                                                                                                          | 641,087,825   | 560,407,685  
|Total deposits                                                                                                                            | 684,553,873   | 600,407,112  
|Federal Home Loan Bank advances                                                                                                           | 186,007,669   | 139,426,777  
|Notes payable                                                                                                                             | 1,783,851     | 2,145,432    
|Other liabilities                                                                                                                         | 10,690,285    | 9,547,793    
|Total liabilities                                                                                                                         | 883,035,678   | 751,527,114  
|**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 - 4,552,218 and 4,708,318 shares | 45,522        | 47,084       
|Additional paid-in capital                                                                                                                | 33,889,584    | 34,385,254   
|Retained earnings                                                                                                                         | 57,968,477    | 56,826,053   
|Accumulated other comprehensive loss                                                                                                      | (374,701)     | (88,646)     
|Unearned benefit plan shares                                                                                                              | (2,735,262)   | (3,309,602)  
|Total stockholders' equity                                                                                                                | 88,793,620    | 87,860,143   
|Total liabilities and stockholders' equity                                                                                                | $ 971,829,298 | $ 839,387,257
|*See Notes to Consolidated Financial Statements*                                                                                          |              

***MutualFirst* Financial, Inc.**

**Consolidated Statements of Income
Years Ended December 31, 2005, 2004 and 2003**

|                                                                             | **2005**     | **2004**     | **2003**    
|---------------------------------------------------------------------------- | ------------ | ------------ | ------------
|**Interest and Dividend Income**                                             |              |              |             
|Loans receivable                                                             | $ 46,424,599 | $ 42,839,649 | $ 44,880,960
|Investment securities                                                        | 1,625,288    | 1,196,295    | 1,130,134   
|Federal Home Loan Bank stock                                                 | 393,628      | 334,544      | 360,153     
|Deposits with financial institutions                                         | 34,477       | 29,460       | 70,820      
|Total interest and dividend income                                           | 48,477,992   | 44,399,948   | 46,442,067  
|**Interest Expense**                                                         |              |              |             
|Deposits                                                                     | 15,285,549   | 12,317,820   | 13,671,004  
|Federal Home Loan Bank advances                                              | 5,822,073    | 5,080,991    | 5,365,496   
|Other interest expense                                                       | 62,424       | 76,849       | 62,424      
|Total interest expense                                                       | 21,170,046   | 17,475,660   | 19,098,924  
|**Net Interest Income**                                                      | 27,307,946   | 26,924,288   | 27,343,143  
|Provision for loan losses                                                    | 1,775,000    | 1,556,500    | 1,450,000   
|**Net Interest Income After Provision for Loan Losses**                      | 25,532,946   | 25,367,788   | 25,893,143  
|**Other Income**                                                             |              |              |             
|Service fee income                                                           | 4,025,671    | 3,193,229    | 2,926,705   
|Net realized gains (losses) on sales of available-for-sale        securities | (762)        | (2,817)      | 6,979       
|Commissions                                                                  | 981,817      | 853,842      | 745,427     
|Equity in income (loss) of limited partnerships                              | 135,216      | 52,322       | (323,450)   
|Net gains on sales of loans                                                  | 228,174      | 729,897      | 1,356,593   
|Net servicing fees (expense)                                                 | 192,171      | 122,596      | (382,620)   
|Increase in cash value of life insurance                                     | 955,000      | 950,000      | 1,343,542   
|Other income                                                                 | 215,025      | 324,340      | 301,843     
|Total other income                                                           | 6,732,312    | 6,223,409    | 5,975,019   
|**Other Expenses**                                                           |              |              |             
|Salaries and employee benefits                                               | 13,792,355   | 16,167,177   | 13,097,034  
|Net occupancy expenses                                                       | 1,415,377    | 1,149,931    | 1,170,121   
|Equipment expenses                                                           | 1,228,134    | 1,124,185    | 1,024,196   
|Data processing fees                                                         | 821,863      | 630,312      | 606,531     
|Advertising and promotion                                                    | 801,377      | 721,957      | 639,859     
|Automated teller machine expense                                             | 654,467      | 587,076      | 492,176     
|Professional fees                                                            | 1,018,485    | 750,144      | 605,095     
|Other expenses                                                               | 3,680,043    | 3,184,942    | 2,831,223   
|Total other expenses                                                         | 23,412,101   | 24,315,724   | 20,466,235  
|**Income Before Income Tax**                                                 | 8,853,157    | 7,275,473    | 11,401,927  
|Income tax expense                                                           | 2,400,975    | 1,753,450    | 3,340,415   
|**Net Income**                                                               | $ 6,452,182  | $ 5,522,023  | $ 8,061,512 
|**Earnings Per Share**                                                       |              |              |             
|Basic                                                                        | $      1.49  | $      1.19  | $      1.64 
|Diluted                                                                      | 1.45         | 1.16         | 1.59        
|*See Notes to Consolidated Financial Statements*                             |             

***MutualFirst* Financial, Inc.**

**Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2005, 2004 and 2003**

|                                                                                     | **CommonStock** | **Paid-InCapital** | **RetainedEarnings** | **AccumulatedOtherComprehensiveIncome(Loss)** | **UnearnedBenefitPlanShares** | **Total**   
|------------------------------------------------------------------------------------ | --------------- | ------------------ | -------------------- | --------------------------------------------- | ----------------------------- | ------------
|**Balances, January 1, 2003**                                                        | $ 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  
|Comprehensive income                                                                 |                 |                    |                      |                                               |                               |             
|Net income                                                                           |                 |                    | 6,452,182            |                                               |                               | 6,452,182   
|Other comprehensive income, net of            
tax - unrealized losses on securities |                 |                    |                      | (286,055)                                     |                               | (286,055)   
|Comprehensive income                                                                 |                 |                    |                      |                                               |                               | 6,166,127   
|Cash dividends ($.53 per share)                                                      |                 |                    | (2,308,856)          |                                               |                               | (2,308,856) 
|Exercise of stock options                                                            | 534             | 758,557            |                      |                                               |                               | 759,091     
|Stock repurchased                                                                    | (2,096)         | (1,815,843)        | (3,000,902)          |                                               |                               | (4,818,841) 
|RRP shares earned                                                                    |                 |                    |                      |                                               | 256,500                       | 256,500     
|Tax benefit on RRP shares                                                            |                 | 155,000            |                      |                                               |                               | 155,000     
|ESOP shares earned                                                                   |                 | 406,616            |                      |                                               | 317,840                       | 724,456     
|**Balances, December 31, 2005**                                                      | $ 45,522        | $ 33,889,584       | $ 57,968,477         | $ (374,701)                                   | $ (2,735,262)                 | $ 88,793,620
|*See Notes to Consolidated Financial Statements*                                     |                

***MutualFirst* Financial, Inc.**

**Consolidated Statements of Cash Flows
Years Ended December 31, 2005, 2004 and 2003**

|                                                                       | **2005**      | **2004**      | **2003**    
|---------------------------------------------------------------------- | ------------- | ------------- | ------------
|**Operating Activities**                                               |               |               |             
|Net income                                                             | $ 6,452,182   | $ 5,522,023   | $ 8,061,512 
|Items not requiring (providing) cash                                   |               |               |             
|Provision for loan losses                                              | 1,775,000     | 1,556,500     | 1,450,000   
|ESOP shares earned                                                     | 724,456       | 752,048       | 751,631     
|RRP shares earned                                                      | 256,500       | 600,550       | 450,000     
|Depreciation and amortization                                          | 2,643,167     | 2,786,288     | 2,476,012   
|Deferred income tax                                                    | 376,614       | 117,298       | 417,241     
|Loans originated for sale                                              | (12,445,397)  | (25,613,232)  | (45,647,544)
|Proceeds from sales of loans held for sale                             | 13,564,331    | 40,820,936    | 52,364,678  
|Gains on sales of loans held for sale                                  | (228,174)     | (729,897)     | (1,356,593) 
|Change in                                                              |               |               |             
|Interest receivable                                                    | (443,527)     | 155,291       | 7,153       
|Other assets                                                           | (941,473)     | (193,052)     | 243,754     
|Interest payable                                                       | 396,568       | 173,530       | 164,490     
|Other liabilities                                                      | 240,216       | (561,368)     | (902,369)   
|Cash value of life insurance                                           | (955,000)     | (950,000)     | (701,049)   
|Other adjustments                                                      | 811,088       | 650,509       | 1,265,262   
|Net cash provided by operating activities                              | 12,226,551    | 25,087,424    | 19,044,178  
|**Investing Activities**                                               |               |               |             
|Purchases of securities available for sale                             | (10,263,230)  | (20,897,969)  | (15,603,309)
|Proceeds from maturities and paydowns of securities available for sale | 7,264,794     | 10,676,145    | 11,451,638  
|Proceeds from sales of securities available for sale                   | 13,399,931    | 3,472,490     | 12,172,309  
|Net change in loans                                                    | (35,099,134)  | (28,416,263)  | (67,000,877)
|Purchases of premises and equipment                                    | (2,431,451)   | (3,182,626)   | (1,894,557) 
|Proceeds from real estate owned sales                                  | 538,342       | 967,264       | 1,733,353   
|Cash paid in acquisition, net                                          | (9,349,563)   | --            | --          
|Other investing activities                                             | (385,996)     | (252,429)     | (21,979)    
|Net cash used in investing activities                                  | (36,326,307)  | (37,633,388)  | (59,163,422)
|**Financing Activities**                                               |               |               |             
|Net change in                                                          |               |               |             
|Noninterest-bearing, interest-bearing demand and savings deposits      | (21,457,623)  | 18,489,158    | 7,062,223   
|Certificates of deposits                                               | 29,713,925    | 2,555,564     | 21,936,224  
|Repayment of note payable                                              | (424,005)     | (427,560)     | (435,487)   
|Proceeds from FHLB advances                                            | 425,300,000   | 253,700,000   | 105,000,000 
|Repayment of FHLB advances                                             | (400,301,792) | (248,922,980) | (85,880,184)
|Net change in advances by borrowers for taxes and insurance            | 259,064       | 130,034       | 113,720     
|Stock repurchased                                                      | (4,818,841)   | (14,706,486)  | (7,182,370) 
|Proceeds from stock options exercised                                  | 759,091       | 553,538       | 974,357     
|Cash dividends                                                         | (2,308,856)   | (2,149,714)   | (2,021,410) 
|Net cash provided by financing activities                              | 26,720,963    | 9,221,554     | 39,567,073  
|**Net Change in Cash and Cash Equivalents**                            | 2,621,207     | (3,324,410)   | (552,171)   
|**Cash and Cash Equivalents, Beginning of Year**                       | 19,743,376    | 23,067,786    | 23,619,957  
|**Cash and Cash Equivalents, End of Year**                             | $ 22,364,583  | $ 19,743,376  | $ 23,067,786
|**Additional Cash Flows Information**                                  |               |               |             
|Interest paid                                                          | $ 20,571,776  | $ 17,302,130  | $ 19,263,414
|Income tax paid                                                        | 2,502,366     | 1,672,000     | 3,191,271   
|Transfers from loans to foreclosed real estate                         | 2,048,232     | 895,599       | 1,220,234   
|Loans transferred to held for sale                                     | --            | 15,293,086    | --          
|Mortgage servicing rights capitalized                                  | 134,710       | 408,208       | 514,893     
|*See Notes to Consolidated Financial Statements*                       |              

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003**
(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 Federal Savings 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 practices followed by the banking industry. The more significant of the
policies are described below.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

The Company is a thrift holding company whose principal activity is the ownership of the Bank. The Bank operates under a federal thrift charter and provides full banking services. As a federally
chartered thrift, the Bank is subject to regulation by the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation.

The Bank generates mortgage, consumer and commercial loans and receives deposits from customers located primarily in north central Indiana. The Bank'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's subsidiary, after elimination of all material intercompany
transactions.

**Cash Equivalents -** The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.

**Investment Securities** - Securities available for sale are carried at fair value with unrealized gains and losses reported separately in accumulated other comprehensive income, net
of tax.

Amortization of premiums and accretion of discounts are recorded using the interest method as interest income from securities. Realized gains and losses are recorded as net security gains
(losses). Gains and losses on sales of securities are determined on the specific-identification method.

Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses. In estimating other-than-temporary losses, management considers the length
of time and extent that fair value has been less than cost, the financial condition and near term prospects of the issuer, and the Company's ability and intent to hold the security for a period
sufficient to allow for any anticipated recovery in fair value.

**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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

| | **Loans** are carried at the principal amount outstanding. A loan is impaired when, based on current information or events, it is probable that the Company will be unable to collect
all amounts due (principal and interest) according to the contractual terms of the loan agreement. Payments with insignificant delays not exceeding 90 days are not considered impaired. Certain
significant nonaccrual and substantially delinquent loans may be considered to be impaired. The Company considers its investment in one-to-four family residential loans and consumer loans to be
homogeneous and therefore excluded from separate identification for evaluation of impairment. Interest income is accrued on the principal balances of loans. The accrual of interest on impaired and
nonaccrual loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is
reversed when considered uncollectible. Interest income is subsequently recognized only to the extent cash payments are received. Certain loan fees and direct costs are being deferred and amortized
as an adjustment of yield on the loans over the contractual maturity of the loans.

**Allowance for loan losses** is maintained to absorb loan losses based on management's continuing review and evaluation of the loan portfolio and its judgment as to the impact of
economic conditions on the portfolio. The evaluation by management includes consideration of past loss experience, changes in the composition of the portfolio, the current condition and amount of
loans outstanding, and the probability of collecting all amounts due. Impaired loans are measured by the present value of expected future cash flows, or the fair value of the collateral of the loan,
if collateral dependent. The allowance is increased by the provision for loan losses, which is charged against current period operating results. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.
Management believes that as of December 31, 2005, the allowance for loan losses is adequate based on information currently available. A worsening or protracted economic decline in the areas
within which the Bank operates would increase the likelihood of additional losses due to credit and market risks and could create the need for additional loss reserves.

**Premises and equipment** are carried at cost net of accumulated depreciation. Depreciation is computed using the straight-line method based principally on the estimated useful lives
of the assets which range from 3 to 50 years. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are
included in current operations.

**Federal Home Loan Bank stock** is a required investment for institutions that are members of the Federal Home Loan Bank system. The required investment in the common stock is based
on a predetermined formula and is carried at cost.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

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

**Investment in limited partnerships** is recorded primarily on the equity method of accounting. Losses due to impairment are recorded when it is determined that the investment no
longer has the ability to recover its carrying amount. The benefits of low income housing tax credits associated with the investment are accrued when earned.

**Goodwill** is tested annually for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written
down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements.

**Income tax** in the consolidated statements of income includes deferred income tax provisions or benefits for all significant temporary differences in recognizing income and
expenses for financial reporting and income tax purposes. The Company files consolidated income tax returns with the Bank.

**Earnings per share** is computed based upon the weighted-average common and common equivalent shares outstanding during each year. Unearned ESOP shares and RRP shares which have not
vested have been excluded from the computation of average shares outstanding.

**Reclassifications** of certain amounts in the 2004 and 2003 consolidated financial statements have been made to conform to the 2005 presentation.

**Stock Options** are accounted for under the recognition and measurement principals of APB Opinion No. 25, *Accounting for Stock Issued to Employees*, and related
interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common
stock on the grant date.

During the period ended December 31, 2005, the Company accelerated the vesting of options previously granted, and the vesting period for the 2005 grants was established so that those grants would
be fully vested by year-end. The term of the acceleration is such that no expense will be recognized by the Company on those grants, although it will continue to report the impact of the acceleration
in its proforma disclosures of the earnings per share.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

| | The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value provisions of Statement of Financial Accounting Standards No. 123, *Share-Based Payment* (SFAS 123).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                  | **2005** | **2004** | **2003**
| | ---------------------------------------------------------------------------------------------------------------- | -------- | -------- | --------
| | Net income, as reported                                                                                          | $ 6,452  | $ 5,522  | $ 8,062 
| | Less: Stock-based employee compensation cost     determined under the fair value method, net of     income taxes | (164)    | (138)    | (226)   
| | Pro forma net income                                                                                             | $ 6,288  | $ 5,348  | $ 7,836 
| | Earnings per share                                                                                               |          |          |         
| | Basic - as reported                                                                                              | $ 1.49   | $ 1.19   | $ 1.64  
| | Basic - pro forma                                                                                                | 1.45     | 1.16     | 1.59    
| | Diluted - as reported                                                                                            | 1.45     | 1.16     | 1.59    
| | Diluted - pro forma                                                                                              | 1.42     | 1.13     | 1.54    

| | In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R, which eliminates the ability to account 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. SFAS 123R will be effective for the Company beginning January 1, 2006. SFAS
123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date.

Beginning in 2006, the Company will apply SFAS 123R using the modified version of prospective application. Under the prospective 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 yet been rendered, based on the grant-date fair value of those awards calculated under SFAS 123R
for either recognition or proforma disclosures. The effect on the Company's results of operations will depend on the level of future option grants and the calculation of the fair value of the options
granted at such future date, as well as the vesting periods provided, and so cannot currently be predicted for future awards.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

**Note 2: Business Acquisition**

| | On September 16, 2005, the Bank acquired substantially all of the assets and assumed essentially all of the liabilities of Fidelity Federal Savings Bank (Fidelity), an affiliate of First Financial
Bancorp of Hamilton, Ohio (First Financial). First Financial did not account for Fidelity as a separate operating segment and, therefore, complete financial statements are not available for purposes
of presenting proforma disclosures. The results of Fidelity's operations have been included in the consolidated financial statements since that date. Fidelity is a thrift located in Marion, Indiana.
As a result of the acquisition, the Bank will have an opportunity to increase its deposit base and reduce transaction costs. The Bank also expects to reduce costs through economies of scale.

The aggregate cash purchase price was $20,274,000. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash and cash equivalents       | $ 10,924
| | ------------------------------- | --------
| | Investments                     | 12,887  
| | Loans                           | 79,805  
| | Premises and equipment          | 641     
| | Core deposit intangible         | 1,011   
| | Goodwill                        | 12,119  
| | Other assets                    | 682     
| | Total assets acquired           | 118,069 
| | Deposits                        | 75,890  
| | Federal Home Loan Bank advances | 21,658  
| | Other liabilities               | 247     
| | Total liabilities assumed       | 97,795  
| | Net assets acquired             | $ 20,274

| | The only significant intangible asset acquired was the core deposit base, which has a useful life of approximately ten years and will be amortized using an accelerated method. The $12,119,000 of
goodwill is expected to be deductible for tax purposes ratably over fifteen years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

**Note 3: 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 at December 31, 2005 was $1,843,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

**Note 4: Investment Securities Available for Sale**

| |                                     | **2005**         
| | ----------------------------------- | -----------------
| |                                     | **AmortizedCost**
| | Mortgage-backed securities          | $ 1,802          
| | Collateralized mortgage obligations | 8,195            
| | Government sponsored entities       | 2,002            
| | Small Business Administration       | 135              
| | Corporate obligations               | 13,059           
| | Marketable equity securities        | 15,218           
| | Total investment securities         | $ 40,411         

| | **2004**                           
| | -----------------------------------
| |                                    
| | Mortgage-backed securities         
| | Collateralized mortgage obligations
| | Government sponsored entities      
| | Small Business Administration      
| | Corporate obligations              
| | Marketable equity securities       
| | Total investment securities        

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

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

| | Certain investments in debt and marketable equity securities are reported in the financial statements at an amount less than their historical cost. Total fair value of these investments at
December 31, 2005 and 2004 was $35,213,000 and $28,166,000, which is approximately 89 and 71 percent of the Company's available-for-sale investment portfolio at those dates. These declines
primarily resulted from increases in market interest rates.

Based on evaluation of available evidence, including recent changes in market interest rates, management believes the declines in fair value for these securities are temporary.

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

The following tables show our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous
unrealized loss position at December 31, 2005 and 2004:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                       | **2005**               
| | ------------------------------------- | -----------------------
| |                                       | **Less than 12 Months**
| | **Description of
Securities**         | **Fair
Value**         
|
| | Mortgage-backed securities            | $ 382                  
| | Collateralized mortgage obligations   | 2,365                  
| | Government sponsored entities         | --                     
| | Corporate obligations                 | 6,023                  
| | Marketable equity securities          | --                     
| | Total temporarily impaired securities | $ 8,770                

| |                                       | **2004**               
| | ------------------------------------- | -----------------------
| |                                       | **Less than 12 Months**
| | **Description of
Securities**         | **Fair
Value**         
| | Mortgage-backed securities            | $ 127                  
| | Collateralized mortgage obligations   | 3,998                  
| | Government sponsored entities         | 1,979                  
| | Small Business Administration         | 176                    
| | Corporate obligations                 | 7,648                  
| | Marketable equity securities          | 6,926                  
| | Total temporarily impaired securities | $ 20,854               

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

| | The amortized cost and fair value of securities available for sale at December 31, 2005, 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                     | **2005**          
| | ----------------------------------- | ------------------
| |                                     | **Amortized
Cost**
| | Within one year                     | $ 1,000           
| | One to five years                   | 9,052             
| | After ten years                     | 5,009             
| |                                     | 15,061            
| | Mortgage-backed securities          | 1,802             
| | Collateralized mortgage obligations | 8,195             
| | Small Business Administration       | 135               
| | Marketable equity securities        | 15,218            
| | Totals                              | $ 40,411          

| | The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $14,636,000 and $14,389,000 at December 31, 2005 and 2004.

Proceeds from sales of securities available for sale during 2005, 2004 and 2003 were $13,400,000, $3,472,000 and $12,172,000. Gross gains of $30,000 in 2003, and gross losses of $1,000, $3,000 and
$23,000 in 2005, 2004 and 2003 were recognized on those sales.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

**Note 5: Loans and Allowance**

| |                                      | **2005**  | **2004** 
| | ------------------------------------ | --------- | ---------
| | Real estate loans                    |           |          
| | One-to-four family                   | $ 449,891 | $ 382,764
| | Multi-family                         | 5,505     | 4,657    
| | Commercial                           | 77,270    | 68,067   
| | Construction and development         | 22,938    | 20,745   
| |                                      | 555,604   | 476,233  
| | Consumer loans                       |           |          
| | Auto                                 | 39,802    | 39,475   
| | Home equity                          | 31,962    | 29,464   
| | Home improvement                     | 31,933    | 23,289   
| | Mobile home                          | 2,106     | 2,879    
| | Recreational vehicles                | 64,222    | 58,643   
| | Boats                                | 40,631    | 38,382   
| | Other                                | 4,305     | 3,327    
| |                                      | 214,961   | 195,459  
| | Commercial business loans            | 64,353    | 53,620   
| | Total loans                          | 834,918   | 725,312  
| | Undisbursed loans in process         | (7,724)   | (9,237)  
| | Unamortized deferred loan costs, net | 3,453     | 3,814    
| | Allowance for loan losses            | (8,100)   | (6,867)  
| | Net loans                            | $ 822,547 | $ 713,022

| |                                   | **2005** | **2004** | **2003**
| | --------------------------------- | -------- | -------- | --------
| | Allowance for loan losses         |          |          |         
| | Balances, January 1               | $ 6,867  | $ 6,779  | $ 6,286 
| | Provision for losses              | 1,775    | 1,557    | 1,450   
| | Allowance acquired in acquisition | 1,646    | --       | --      
| | Recoveries on loans               | 351      | 523      | 404     
| | Loans charged off                 | (2,539)  | (1,992)  | (1,361) 
| | Balances, December 31             | $ 8,100  | $ 6,867  | $ 6,779 

| | At December 31, 2005 and 2004, accruing loans delinquent 90 days or more totaled $1,960,000 and $119,000. Non-accruing loans at December 31, 2005 and 2004 were $5,422,000 and $3,985,000.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

| | Impaired loans totaled $6,882,000 and $4,064,000 at December 31, 2005 and 2004, respectively. An allowance for loan losses of $1,002,000 and $828,000 relates to impaired loans of $4,921,000 and
$4,064,000 at December 31, 2005 and 2004, respectively. At December 31, 2005, impaired loans of $1,961,000 had no related allowance for loan losses.

Interest of $165,000, $131,000 and $62,000 was recognized on average impaired loans of $6,944,000, $4,205,000 and $2,942,000 for 2005, 2004 and 2003, respectively. Interest of $2,000, $47,000 and
$22,000 was recognized on impaired loans on a cash basis during 2005, 2004 and 2003, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

**Note 6: Premises and Equipment**

| |                                           | **2005** | **2004**
| | ----------------------------------------- | -------- | --------
| | Cost                                      |          |         
| | Land                                      | $ 4,535  | $ 3,334 
| | Buildings and land improvements           | 12,395   | 11,119  
| | Equipment                                 | 11,124   | 9,763   
| | Total cost                                | 28,054   | 24,216  
| | Accumulated depreciation and amortization | (13,885) | (12,025)
| | Net                                       | $ 14,169 | $ 12,191

**Note 7: Investment In Limited Partnerships**

| |                                                          | **2005** | **2004**
| | -------------------------------------------------------- | -------- | --------
| | Pedcor Investments 1988-V (98.97 percent ownership)      | $ --     | $ 323   
| | Pedcor Investments 1990-XI (19.79 percent ownership)     | 17       | 28      
| | Pedcor Investments 1990-XIII (99.00 percent ownership)   | 762      | 765     
| | Pedcor Investments 1997-XXVIII (99.00 percent ownership) | 2,578    | 2,758   
| | Pedcor Investments 1997-XXIX (99.00 percent ownership)   | 849      | 696     
| | Pedcor Investments 2001-LI (9.94 percent ownership)      | 400      | 455     
| |                                                          | $ 4,606  | $ 5,025 

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(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 limited partnerships based on the Company's interest in the
partnerships. The Company recorded income (loss) from these limited partnerships of $135,000, $52,000, and $(323,000) for 2005, 2004 and 2003. In addition, the Company has recorded the benefit of low
income housing credits of $811,000, $800,000 and $753,000 for 2005, 2004 and 2003. Combined financial statements for the limited partnerships recorded under the equity method of accounting are as
follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                        | **2005** | **2004**
| | -------------------------------------- | -------- | --------
| | Combined condensed balance sheets      |          |         
| | Assets                                 |          |         
| | Cash                                   | $ 96     | $ 150   
| | Land and property                      | 28,282   | 35,129  
| | Other assets                           | 628      | 1,174   
| | Total assets                           | $ 29,006 | $ 36,453
| | Liabilities                            |          |         
| | Notes payable                          | $ 25,577 | $ 33,875
| | Other liabilities                      | 960      | 1,347   
| | Total liabilities                      | 26,537   | 35,222  
| | Partners' equity (deficit)             |          |         
| | General partners                       | (1,437)  | (2,931) 
| | Limited partners                       | 3,906    | 4,162   
| | Total partners' equity                 | 2,469    | 1,231   
| | Total liabilities and partners' equity | $ 29,006 | $ 36,453

| |                                             | **2005** | **2004** | **2003**
| | ------------------------------------------- | -------- | -------- | --------
| | Combined condensed statements of operations |          |          |         
| | Total revenue                               | $ 3,114  | $ 4,349  | $ 3,695 
| | Total expenses                              | (3,832)  | (5,014)  | (4,129) 
| | Net loss                                    | $ (718)  | $ (665)  | $ (434) 

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

**Note 8: Deposits**

| |                                                          | **2005**  | **2004** 
| | -------------------------------------------------------- | --------- | ---------
| | Noninterest-bearing demand                               | $ 43,466  | $ 39,999 
| | Interest-bearing demand                                  | 68,710    | 58,440   
| | Savings                                                  | 60,867    | 61,629   
| | Money market savings                                     | 43,762    | 54,704   
| | Certificates and other time deposits of $100,000 or more | 164,579   | 121,871  
| | Other certificates                                       | 303,170   | 263,764  
| | Total deposits                                           | $ 684,554 | $ 600,407

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

| | 2006 | $ 283,573 | 
| | ---- | --------- | 
| | 2007 | 100,115   | 
| | 2008 | 35,196    | 
| | 2009 | 10,866    | 
| | 2010 | 37,999    | 
| |      | $ 467,749 | 

**Note 9: Federal Home Loan Bank Advances**

| | Maturities Years Ending December 31 |          
| | ----------------------------------- | ---------
|
| | 2006                                | $ 107,983
| | 2007                                | 25,950   
| | 2008                                | 15,321   
| | 2009                                | 6,840    
| | 2010                                | 22,886   
| | Thereafter                          | 7,028    
| |                                     | $ 186,008

| | At December 31, 2005, the Company has pledged $429,091,000 in qualifying first mortgage loans and investment securities as collateral for advances and outstanding letters of credit. Advances,
at interest rates from 2.04 to 7.33 percent at December 31, 2005, are subject to restrictions or penalties in the event of prepayment.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

**Note 10: Line of Credit**

| | The Company has a $7,500,000 revolving line of credit expiring in November 2006. At December 31, 2005 and 2004, there were no amounts borrowed against this line. The line is collateralized by
the Bank's stock. Interest varies with the lender's prime rate, which was 7.25 percent and 5.25 percent on December 31, 2005 and 2004, respectively, and is payable quarterly.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

**Note 11: Notes Payable**

| | The Bank has a noninterest-bearing, unsecured term note payable to Pedcor Investments 1997-XXVIII, L.P. of $1,400,000 and $1,461,000 at December 31, 2005 and 2004 payable in semiannual
installments through January 1, 2010. At December 31, 2005 and 2004, the Bank was obligated under an irrevocable direct pay letter of credit for the benefit of a third party in the amount
of $1,254,000 relating to this note and the financing for an apartment project by Pedcor Investments 1997-XXVIII L.P.

The Bank also has a noninterest-bearing, unsecured term note payable to Pedcor Investments 1997-XXIX, L.P. The note, which is payable in annual installments through August 15, 2008, had a
balance of $384,000 and $684,000 at December 31, 2005 and 2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Maturities Years Ending December 31 |        
| | ----------------------------------- | -------
|
| | 2006                                | $ 357  
| | 2007                                | 371    
| | 2008                                | 409    
| | 2009                                | 421    
| | 2010                                | 226    
| |                                     | $ 1,784

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

**Note 12: Loan Servicing**

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

| |                        | **2005**  | **2004**  | **2003** 
| | ---------------------- | --------- | --------- | ---------
| | Loans serviced for     |           |           |          
| | Freddie Mac            | $ 103,279 | $ 104,733 | $ 90,616 
| | Fannie Mae             | 4,155     | 5,530     | 7,712    
| | Federal Home Loan Bank | 24,379    | 23,852    | 17,307   
| | Other investors        | 9,096     | 7,611     | 12,327   
| |                        | $ 140,909 | $ 141,726 | $ 127,962

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

| |                                  | **2005** | **2004** | **2003**
| | -------------------------------- | -------- | -------- | --------
| | Mortgage Servicing Rights        |          |          |         
| | Balances, January 1              | $ 1,375  | $ 1,333  | $ 1,193 
| | Servicing rights capitalized     | 135      | 408      | 515     
| | Servicing rights acquired        | 52       | --       | --      
| | Amortization of servicing rights | (387)    | (366)    | (375)   
| |                                  | 1,175    | 1,375    | 1,333   
| | Valuation allowance              | --       | (180)    | (320)   
| | Balances, December 31            | $ 1,175  | $ 1,195  | $ 1,013 

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

| |                            | **2005** | **2004** | **2003**
| | -------------------------- | -------- | -------- | --------
| | Balance, beginning of year | $ 180    | $ 320    | $ --    
| | Additions                  | 43       | --       | 320     
| | Reductions                 | (223)    | (140)    | --      
| | Balances, end of year      | $ 0      | $ 180    | $ 320   

***MutualFirst* Financial, Inc.**

**Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)**

**Note 13: Income Tax**

|                                                          | **2005** | **2004** | **2003**
|--------------------------------------------------------- | -------- | -------- | --------
|Income tax expense                                        |          |          |         
|Currently payable                                         |          |          |         
|Federal                                                   | $ 1,527  | $ 1,148  | $ 2,090 
|State                                                     | 497      | 488      | 833     
|Deferred                                                  |          |          |         
|Federal                                                   | 231      | 87       | 439     
|State                                                     | 146      | 30       | (22)    
|Total income tax expense                                  | $ 2,401  | $ 1,753  | $ 3,340 
|Reconciliation of federal statutory to actual tax expense |          |          |         
|Federal statutory income tax at 34%                       | $ 3,010  | $ 2,474  | $ 3,877 
|Effect of state income taxes                              | 424      | 342      | 535     
|Low income housing credits                                | (811)    | (800)    | (753)   
|Tax-exempt income                                         | (384)    | (363)    | (492)   
|Other                                                     | 162      | 100      | 173     
|Actual tax expense                                        | $ 2,401  | $ 1,753  | $ 3,340 
|Effective tax rate                                        | 27.1%    | 24.1%    | 29.3%   

***MutualFirst* Financial, Inc.**

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(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:

|                                                 | **2005** | **2004**
|------------------------------------------------ | -------- | --------
|**Assets**                                       |          |         
|Unrealized loss on securities available for sale | $ 250    | $ 59    
|Allowance for loan losses                        | 2,729    | 2,858   
|Deferred compensation                            | 2,626    | 2,389   
|Business tax and AMT credit carryovers           | 1,039    | 885     
|Other                                            | 313      | 598     
|Total assets                                     | 6,957    | 6,789   
|**Liabilities**                                  |          |         
|Depreciation and amortization                    | (234)    | --      
|FHLB stock                                       | (534)    | (463)   
|State income tax                                 | (180)    | (219)   
|Loan fees                                        | (306)    | (378)   
|Investments in limited partnerships              | (1,397)  | (1,229) 
|Mortgage servicing rights                        | (489)    | (497)   
|Total liabilities                                | (3,140)  | (2,786) 
|                                                 | $ 3,817  | $ 4,003 

The Company has unused business income tax credits of $866,000 that begin to expire in 2017. In addition, the Company has an AMT credit carryover of $173,000 with an unlimited carryover
period.

Retained earnings include approximately $14,743,000 for which no deferred income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions as of
December 31, 1987 for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create
income for tax purposes only, which income would be subject to the then-current corporate income tax rate. The unrecorded deferred income tax liability on the above amounts was approximately
$5,013,000.

*MutualFirst* Financial, Inc.

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 14: Other Comprehensive Income**

|                                                                    | **2005**            
|------------------------------------------------------------------- | --------------------
|                                                                    | **Before-TaxAmount**
|Unrealized losses on securities                                     |                     
|Unrealized holding losses arising during the year                   | $ (475)             
|Less: reclassification adjustment for losses realized in net income | (1)                 
|Net unrealized losses                                               | $ (474)             

|                                                                    | **2004**            
|------------------------------------------------------------------- | --------------------
|                                                                    | **Before-TaxAmount**
|Unrealized losses on securities                                     |                     
|Unrealized holding losses arising during the year                   | $ (537)             
|Less: reclassification adjustment for losses realized in net income | (3)                 
|Net unrealized losses                                               | $ (534)             

|                                                                   | **2003**            
|------------------------------------------------------------------ | --------------------
|                                                                   | **Before-TaxAmount**
|Unrealized losses on securities                                    |                     
|Unrealized holding losses arising during the year                  | $ (343)             
|Less: reclassification adjustment for gains realized in net income | 7                   
|Net unrealized losses                                              | $ (350)             

**Note 15: Commitments and Contingent Liabilities**

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

*MutualFirst* Financial, Inc.

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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

|                          | **2005** | **2004** | **2003**
|------------------------- | -------- | -------- | --------
|Loan commitments          | $ 73,609 | $ 78,641 | $ 72,419
|Standby letters of credit | 7,157    | 7,211    | 7,165   

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation. Collateral held varies, but may include residential real estate, income-producing commercial properties, or other assets of the borrower.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

The Company and Bank are also subject to claims and lawsuits which arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution
of such claims and lawsuits will not have a material adverse effect on the consolidated financial position of the Company.

The Company has entered into employment agreements with certain officers that provide for the continuation of salary and certain benefits for a specified period of time under certain conditions.
Under the terms of the agreement, these payments could occur in the event of a change in control of the Company, as defined, along with other specific conditions.

**Note 16: Stockholders' Equity**

The Company is not subject to any regulatory restrictions on the payment of dividends to its stockholders.

Without prior approval, current regulations allow the Bank to pay dividends to the Company not exceeding retained net income for the previous two calendar years. At December 31, 2005, the Bank had
no regulatory approval to pay dividends to the Company.

*MutualFirst* Financial, Inc.

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 17: Regulatory Capital**

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies and is assigned to a capital category. The assigned capital category is largely
determined by three ratios that are calculated according to the regulations: total risk adjusted capital, Tier 1 risk-based capital, and core leverage ratios. The ratios are intended to measure
capital relative to assets and credit risk associated with those assets and off-balance sheet exposures of the entity. The capital category assigned to an entity can also be affected by qualitative
judgments made by regulatory agencies about the risk inherent in the entity's activities that are not part of the calculated ratios.

There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can
result in actions by regulators that could have a material effect on a bank's operations. At December 31, 2005 and 2004, the Bank was categorized as well capitalized and met all subject capital
adequacy requirements. There are no conditions or events since December 31, 2005 that management believes have changed the Bank's classification.

The Bank's actual and required capital amounts and ratios are as follows:

|                                                    | **Actual** | **Required for AdequateCapital** | **To Be WellCapitalized**
|--------------------------------------------------- | ---------- | -------------------------------- | -------------------------
|                                                    | **Amount** | **Ratio**                        | **Amount**               
|**As of December 31, 2005**                         |            |                                  |                          
|Total risk-based capital (to risk-weighted assets)  | $ 72,813   | 10.3%                            | $ 56,348                 
|Tier 1 risk-based capital (to risk-weighted assets) | 65,074     | 9.2%                             | 28,174                   
|Core capital (to adjusted total assets)             | 65,074     | 6.8%                             | 28,677                   
|Core capital (to adjusted tangible assets)          | 65,074     | 6.8%                             | 19,111                   
|Tangible capital (to adjusted total assets)         | 65,074     | 6.8%                             | 14,333                   
|**As of December 31, 2004**                         |            |                                  |                          
|Total risk-based capital (to risk-weighted assets)  | $ 90,595   | 15.0%                            | $ 48,436                 
|Tier 1 risk-based capital (to risk-weighted assets) | 84,153     | 13.9%                            | 24,218                   
|Core capital (to adjusted total assets)             | 84,153     | 10.0%                            | 25,121                   
|Core capital (to adjusted tangible assets)          | 84,153     | 10.0%                            | 16,747                   
|Tangible capital (to adjusted total assets)         | 84,153     | 10.0%                            | 12,560                   

***MutualFirst* Financial, Inc.**

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 18: Employee Benefits**

The Company has a retirement savings 401(k) plan in which substantially all employees may participate. The contributions are discretionary and determined annually. The Company matches employees'
contributions at the rate of 50 percent for the first $600 of participant contributions to the 401(k) and made a contribution to the plan of 3 percent of qualified compensation. The Company's
expense for the plan was $310,000, $370,000 and $225,000 for 2005, 2004 and 2003.

The Company has a supplemental retirement plan and deferred compensation arrangements for the benefit of certain officers. The Company also has deferred compensation arrangements with certain
directors whereby, in lieu of currently receiving fees, the directors or their beneficiaries will be paid benefits for an established period following the director's retirement or death. These
arrangements are informally funded by life insurance contracts which have been purchased by the Company. The Company records a liability for these vested benefits based on the present value of future
payments. The Company's expense for the plan was $618,000, $753,000 and $776,000 for 2005, 2004 and 2003.

The Company has an ESOP covering substantially all of its employees. At December 31, 2005, 2004 and 2003, the Company had 254,275, 286,059 and 317,843 unearned ESOP shares with a fair value
of $5,594,000, $6,963,000 and $7,981,000. Shares are released to participants proportionately as ESOP debt is repaid. Dividends on allocated shares are recorded as dividends and charged to retained
earnings. Dividends on unallocated shares are used to repay the loan. Compensation expense is recorded equal to the fair market value of the stock committed-to-be-released 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 2005, 2004 and 2003 was $724,000, $752,000 and $752,000. The following
table provides information on ESOP shares at December 31.

|                                | **2005** | **2004** | **2003**
|------------------------------- | -------- | -------- | --------
|Allocated shares                | 159,761  | 130,117  | 111,126 
|Suspense shares                 | 254,275  | 286,059  | 317,843 
|Committed-to-be released shares | 31,783   | 31,783   | 31,783  

The Company has a Recognition and Retention Plan (RRP) for the award of up to 232,784 shares of the common stock of the Company to directors and executive officers. Common stock awarded under the
RRP vests ratably over a three or five-year period commencing with the date of the grants. Expense recognized on the vested shares totaled approximately $257,000, $601,000 and $450,000 in 2005, 2004
and 2003. The unearned portion of these stock awards is presented as a reduction of stockholders' equity.

*MutualFirst* Financial, Inc.

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 19: Stock Option Plan**

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

The following is a summary of the status of the Company's stock option plan and changes in that plan for 2005, 2004 and 2003.

|                                                               | **2005**   | **2004**                          | **2003**  
|-------------------------------------------------------------- | ---------- | --------------------------------- | ----------
|**Options**                                                    | **Shares** | **Weighted-AverageExercisePrice** | **Shares**
|Outstanding, beginning of year                                 | 487,814    | $ 16.15                           | 528,389   
|Granted                                                        | 16,000     | 22.00                             | --        
|Exercised                                                      | (51,389)   | 14.21                             | (38,175)  
|Forfeited/expired                                              | (2,000)    | 14.50                             | (2,400)   
|Outstanding, end of year                                       | 450,425    | 16.59                             | 487,814   
|Options exercisable at year end                                | 450,425    |                                   | 354,414   
|Weighted-average fair value of options granted during the year |            | 3.34                              |           

At December 31, 2005, certain information by exercise price for options outstanding and exercisable is as follows:

| | ExercisePrice |  | Numberof Shares |  | Weighted-AverageRemainingContractualLife |  | Number ofSharesExercisable
| | ------------- |  | --------------- |  | ---------------------------------------- |  | --------------------------
| | $ 12.35       |  | 6,912           |  | 1.6 years                                |  | 6,912                     
| | 14.50         |  | 352,513         |  | 8.0 years                                |  | 352,513                   
| | 25.66         |  | 75,000          |  | 10.5 years                               |  | 75,000                    
| | 22.00         |  | 16,000          |  | 11.5 years                               |  | 16,000                    

***MutualFirst* Financial, Inc.**

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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

|                                                            | **2005** | **2003**
|----------------------------------------------------------- | -------- | --------
|Risk-free interest rates                                    | 4.25%    | 2.29%   
|Dividend yields                                             | 2.35%    | 1.76%   
|Volatility factors of expected market price of common stock | 9.30%    | 9.30%   
|Weighted-average expected life of the options               | 8 years  | 8 years 

**Note 20: Stock Repurchase Plan**

On December 22, 2004, the Company announced that its Board of Directors approved a stock repurchase program for up to 471,000 of the outstanding common shares of the Company. Shares may be
purchased from time to time in the open market and in large block privately negotiated transactions. The Company is not obligated to purchase any shares under the program, and the program may be
discontinued at any time before the maximum number of shares specified by the program are purchased. As of December 31, 2005, the Company had purchased 166,431 shares under the program.

**Note 21: Earnings Per Share**

Earnings per share were computed as follows:

|                                                                | **2005**
|--------------------------------------------------------------- | --------
|                                                                | Income  
|**Basic Earnings Per Share**                                    |         
|Income available to common stockholders                         | $ 6,452 
|**Effect of Dilutive Securities**                               |         
|Stock options                                                   | --      
|**Diluted Earnings Per Share**                                  |         
|Income available to common stockholders and assumed conversions | $ 6,452 

***MutualFirst* Financial, Inc.**

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

| |                                                                        | **2004**  
| | ---------------------------------------------------------------------- | ----------
| |                                                                        | **Income**
| | **Basic Earnings Per Share**                                           |           
| | Income available to common stockholders                                | $ 5,522   
| | **Effect of Dilutive Securities**                                      |           
| | Stock options                                                          | --        
| | **Diluted Earnings Per Share**                                         |           
| | Income available to common stockholders        and assumed conversions | $ 5,522   

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

| | Options to purchase 75,000 and 16,000 shares of common stock at $25.66 and $22.00 per share, respectively, were outstanding at December 31, 2005, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the average market price of the common shares.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

**Note 22: 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***MutualFirst* Financial, Inc.**

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

| | **Investment and Mortgage-Backed Securities** - Fair values are based on quoted market prices.

**Loans Held For Sale -** Fair values are based on quoted market prices.

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

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

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

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

**Federal Home Loan Bank Advances** - The fair value of these borrowings are estimated using a discounted cash flow calculation, based on current rates for similar debt for periods
comparable to the remaining terms to maturity of these advances.

**Notes Payable** - The fair value of this note is estimated using a discount calculation based on current rates.

**Advances by Borrowers for Taxes and Insurance** - The fair value approximates carrying value.

**Off-Balance Sheet Commitments** - Commitments include commitments to purchase and originate mortgage loans, commitments to sell mortgage loans, and standby letters of credit and are
generally of a short-term nature. The fair values of such commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements
and the counterparties' credit standing. The carrying amounts of these investments are reasonable estimates of the fair value of these financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

***MutualFirst* Financial, Inc.**

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

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

| |                                               | **2005**           | **2004**     
| | --------------------------------------------- | ------------------ | -------------
| |                                               | **CarryingAmount** | **FairValue**
| | **Assets**                                    |                    |              
| | Cash and cash equivalents                     | $ 22,365           | $ 22,365     
| | Securities available for sale                 | 39,788             | 39,788       
| | Loans held for sale                           | 2,022              | 2,071        
| | Loans                                         | 822,547            | 817,307      
| | Stock in FHLB                                 | 10,125             | 10,125       
| | Interest receivable                           | 3,898              | 3,898        
| | **Liabilities**                               |                    |              
| | Deposits                                      | 684,554            | 649,620      
| | FHLB advances                                 | 186,008            | 186,564      
| | Notes payable                                 | 1,784              | 1,467        
| | Interest payable                              | 1,623              | 1,623        
| | Advances by borrowers for taxes and insurance | 1,838              | 1,838        
| | Off-balance sheet commitments                 | --                 | --           

***MutualFirst* Financial, Inc.**

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 23: 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
|------------------------
|                        
|                        
|                        
|                        
|                        
|                        
|                        
|                        
|                        
|                        
|                        
|                        
|                        
|                        

***MutualFirst* Financial, Inc.**

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

|Condensed Statements of Income
|------------------------------
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              

***MutualFirst* Financial, Inc.**

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

|Condensed Statements of Cash Flows
|----------------------------------
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  

***MutualFirst* Financial, Inc.**

Notes to Consolidated Financial Statements
December 31, 2005, 2004 and 2003
(Table Dollar Amounts in Thousands, Except Share and Per Share Data)

**Note 24: Quarterly Results of Operations (Unaudited)**

| | **QuarterEnded** | **InterestIncome** | **InterestExpense** | **NetInterestIncome** | **ProvisionforLoanLosses** | **NetIncome** | **BasicEarningsPerCommonShare** | **DilutedEarningsPerCommonShare**
| | ---------------- | ------------------ | ------------------- | --------------------- | -------------------------- | ------------- | ------------------------------- | ---------------------------------
|
| | 2005             |                    |                     |                       |                            |               |                                 |                                  
| | March            | $ 11,237           | $ 4,563             | $ 6,674               | $ 443                      | $ 1,608       | $ .37                           | $ .36                            
| | June             | 11,507             | 4,815               | 6,692                 | 444                        | 1,689         | .39                             | .38                              
| | September        | 12,087             | 5,389               | 6,698                 | 444                        | 1,553         | .38                             | .35                              
| | December         | 13,647             | 6,403               | 7,244                 | 444                        | 1,602         | .37                             | .37                              
| | Total            | $ 48,478           | $ 21,170            | $ 27,308              | $ 1,775                    | $ 6,452       | 1.49                            | 1.45                             
| | 2004             |                    |                     |                       |                            |               |                                 |                                  
| | March            | $ 11,197           | $ 4,367             | $ 6,830               | $ 227                      | $ 1,968       | $ 0.41                          | $ 0.40                           
| | June             | 11,048             | 4,211               | 6,837                 | 530                        | 1,814         | 0.38                            | 0.37                             
| | September        | 10,979             | 4,368               | 6,611                 | 350                        | 1,724         | 0.38                            | 0.37                             
| | December         | 11,176             | 4,530               | 6,646                 | 450                        | 16            | 0.00                            | 0.00                             
| | Total            | $ 44,400           | $ 17,476            | $ 26,924              | $ 1,557                    | $ 5,522       | 1.19                            | 1.16                             

| | In the fourth quarter of 2004, the Company incurred an expense, net of tax, of approximately $1,700,000 ($.38 per diluted share) associated with a separation agreement entered into in November
2004 with a former officer of the Bank.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

No disclosure under this item is required.

**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, 2005,
was carried out under the supervision and with the participation of the our Chief Executive
Officer, Principal Financial Officer and several other members of our 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, 2005, 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 and communicated 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 time periods 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 occurred during the quarter ended December 31,
2005, 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 prevent all error and all
fraud.  A control procedure, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control procedure are met.  Because
of the inherent limitations in all control procedures, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within *MutualFirst* have
been detected.  These inherent limitations include the realities that judgment in decision-making
can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control.  The design of any control procedure also is
based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of changes in conditions, or the
degree of compliance with the policies or procedures may deteriorate.  Because of the inherent
limitations in a cost-effective control procedure, misstatements due to error or fraud may occur
and not be detected.

There were no changes in our internal controls over financial reporting (as defined in Rule
13a-15(f) under the Act) that occurred during the quarter ended December 31, 2005, that have
materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.  The annual report of management on the effectiveness of internal control over
financial reporting and the attestation report thereon issued by our independent registered public
accounting firm are set forth below under "Management's Report on Internal Control Over

Financial Reporting" and "Report of the Independent Registered Public Accounting Firm."

**Management's Report on Internal Control over Financial Reporting**

The management of MutualFirst Financial, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f). The Company's internal control over financial reporting is a
process designed to provide reasonable assurance to the Company's management and board of
directors regarding the reliability of financial reporting and the preparation of the financial
statements for external purposes in accordance with accounting principles generally accepted in
the United States of America.

The Company's internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted in the United
States of America, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the Company's assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal controls over financial reporting may not
prevent or detect misstatements. All internal control systems, no matter how well designed, have
inherent limitations, including the possibility of human error and the circumvention of overriding
controls. Accordingly, even effective internal control over financial reporting can provide only
reasonable assurance with respect to financial statement preparation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.

Our management assessed the effectiveness of the Company's internal control over
financial reporting as of December 31, 2005. In making this assessment, it used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in*Internal Control-Integrated Framework*. Based on our assessment, we believe that, as of
December 31, 2005, the Company's internal control over financial reporting was effective based
on those criteria.

The Company's independent auditors have issued an audit report on our assessment of
internal control over financial reporting as of December 31, 2005. This report is included in this
Form 10-K. See "Report of Independent Registered Public Accounting Firm," which follows this
report.

|Date: March 16, 2006 | By: | /s/  David W. Heeter David W. Heeter 
President and Chief Executive Officer      
|-------------------- | --- | ---------------------------------------------------------------------------------
|                     | By: | /s/  Timothy J. McArdle
Timothy J. McArdle 
Treasurer and Chief Financial Officer

company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.


In our opinion, management's assessment that MutualFirst Financial, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, MutualFirst Financial, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of MutualFirst Financial, Inc. and our report dated February 3, 2006 expressed an unqualified opinion thereon.

/s/ BKD, LLP

BKD, LLP
Indianapolis, Indiana February 3, 2006

**Item 9B.	Other Information**

None.



**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 its Annual Meeting of Stockholders to be held in
April 2006, except for information contained under the headings "Compensation Committee
Report on Executive Compensation," "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.

**Executive Officers**

Information concerning the executive officers of the Company who are not directors is
incorporated herein by reference from Part I of this Form 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 financial experts 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 2006, except for information contained
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 registered class 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, directors and greater than
10% stockholders are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.

A Form 3 filed for James L. Widner, Vice President of the Company, on December 23,
2005, was not deemed timely, because it failed to include his ownership of 100 shares.  The
amended Form 3 disclosing that ownership was filed on January 5, 2006.  To the Company's
knowledge, based solely on a review of the copies of such reports furnished to the Company and
written representations that no other reports were required during the fiscal year ended December
31, 2005, all Section 16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with, except for Mr. Widner's late filing.

**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 Exchange Act.  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 Form 10-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 Annual Meeting of Stockholders to be held in
April 2006, except for information contained under the headings "Compensation Committee
Report on Executive Compensation", "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 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's definitive proxy statement for its Annual
Meeting of Stockholders to be held in April 2006, except for information contained under the
headings "Compensation Committee Report on Executive Compensation", "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, 2005.

|Plan Category                                                        | Number of securities tobe issued upon exerciseof outstanding options
warrants and rights | Weighted-averageexercise price ofoutstanding optionswarrants and rights | Number of securitiesremaining available  forfuture issuance under
equity compensation plans
|-------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------------------------------------------------------
|Equity compensation
     plans approved by
     security holders     | 450,425                                                                                  | $ 16.59                                                                 | 200                                                                                        
|Equity compensation
     plans not approved
     by security holders | ----                                                                                     | ----                                                                    | ----                                                                                       

______________

(1)  	Includes 200 shares available for future grants under *MutualFirst* Financial, Inc's stock option plan.

**Item 13.	Certain Relationships and Related Transactions**

Information concerning certain relationships and related transactions is incorporated
herein by reference from the Company's definitive proxy statement for its Annual Meeting of
Stockholders to be held in April 2006, except for information contained under the headings
"Compensation Committee Report on Executive Compensation", "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 the Annual Meeting of Stockholders to be held
in April 2006 (excluding the information contained under the heading of "Report of the
Audit/Compliance Committee") a copy of which will be filed no later than 120 days after
December 31, 2005.

**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 Section                                                                 
|--------------------------------------------------------------------------------------
|Report of Independent Registered Public Accounting Firm                               
|Consolidated Balance Sheets at December 31, 2005 and 2004                             
|Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003

|Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2005,
     2004 and 2003
|---------------------------------------------------------------------------------------------------------
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and
     2003          
|Notes 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 not applicable.

**(a)(3) List of Exhibits**:

|**RegulationS-KExhibit
Number** | **Document**                                                                                                                                                                                         | **Reference toPrior Filing orExhibitNumberAttached
Hereto******
|------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------
|                                |                                                                                                                                                                                                      |                                                                
|2                               | Plan of acquisition, reorganization, arrangement, liquidation or succession                                                                                                                          | None                                                           
|3(i)                            | Articles of Incorporation                                                                                                                                                                            | *                                                              
|3(ii)                           | Amended Bylaws                                                                                                                                                                                       | ++                                                             
|4                               | Instruments defining the rights of security holders, including indentures:                                                                                                                           |                                                                
|                                | Form of *MutualFirst* Financial, Inc. Common Stock Certificate                                                                                                                                       | *                                                              
|9                               | Voting Trust Agreement                                                                                                                                                                               | None                                                           
|10                              | Material 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 2001 Stock Option and Incentive Plan                                                                                                                                                    | ***                                                            
|                                | Registrant's 2001 Recognition and Retention Plan                                                                                                                                                     | ***                                                            
|                                | Named Executive Officer Salary and Bonus Arrangements for 2006                                                                                                                                       | 10.1                                                           
|                                | Director Fee Arrangements for 2006                                                                                                                                                                   | 10.2                                                           
|11                              | Statement re computation of per share earnings                                                                                                                                                       | None                                                           
|12                              | Statements re computation of ratios                                                                                                                                                                  | None                                                           
|14                              | Code of Ethics                                                                                                                                                                                       | +++                                                            
|16                              | Letter re change in certifying accountant                                                                                                                                                            | None                                                           
|18                              | Letter re change in accounting principles                                                                                                                                                            | None                                                           
|21                              | Subsidiaries of the registrant                                                                                                                                                                       | 21                                                             
|22                              | Published report regarding matters submitted to vote of security holders                                                                                                                             | None                                                           
|23                              | Consents of Experts and Counsel                                                                                                                                                                      | 23                                                             
|24                              | Power of Attorney                                                                                                                                                                                    | None                                                           
|31.1                            | Rule 13(a)-14(a) Certification (Chief Executive Officer)                                                                                                                                             | 31.1                                                           
|31.2                            | Rule 13(a)-14(a) Certification (Chief Financial Officer)                                                                                                                                             | 31.2                                                           
|32                              | Section 1350 Certification                                                                                                                                                                           | 32                                                             



*	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, 2001 (File No. 000-27905).Such previously filed
document is incorporated herein by reference in accordance 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, 2001 (File No. 333-46510).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 April 2, 2002 (File No. 000-27905).  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 15, 2005 (File No. 000-27905).  Such previously filed
document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.

**(b)  Exhibits**- Included, see list in (a)(3).

**(c)  Financial Statements Schedules** - None



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to 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 on behalf of the Registrant and in the capacities and on the dates indicated.

|/s/  David W. Heeter                                                   | /s/ Wilbur R. Davis                                                                                                   
|---------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------
|David W. Heeter, President and Director*(Principal Executive Officer)* | Wilbur R. Davis, Chairman of the Board                                                                                
|                                                                       |                                                                                                                       
|Date:   March 16, 2006                                                 | Date:   March 16, 2006                                                                                                
|                                                                       |                                                                                                                       
|/s/  R. Donn Roberts                                                   | /s/  Edward J. Dobrow                                                                                                 
|R. Donn Roberts, Director                                              | Edward J. Dobrow, Director                                                                                            
|                                                                       |                                                                                                                       
|Date:   March 16, 2006                                                 | Date:   March 16, 2006                                                                                                
|                                                                       |                                                                                                                       
|                                                                       |                                                                                                                       
|/s/  Linn A. Crull                                                     | /s/  James D. Rosema                                                                                                  
|Linn A. Crull, Director                                                | James D. Rosema, Director                                                                                             
|                                                                       |                                                                                                                       
|Date:   March 16, 2006                                                 | Date:   March 16, 2006                                                                                                
|                                                                       |                                                                                                                       
|                                                                       |                                                                                                                       
|/s/  William V. Hughes                                                 | /s/  Jerry D. McVicker                                                                                                
|William V. Hughes, Director                                            | Jerry D. McVicker, Director                                                                                           
|                                                                       |                                                                                                                       
|Date:   March 16, 2006                                                 | Date:   March 16, 2006                                                                                                
|                                                                       |                                                                                                                       
|                                                                       |                                                                                                                       
|/s/  Lynne D. Richardson                                               | /s/  Jon R. Marler                                                                                                    
|Lynne D. Richardson, Director                                          | Jon R. Marler, Director                                                                                               
|                                                                       |                                                                                                                       
|Date:   March 16, 2006                                                 | Date:   March 16, 2006                                                                                                
|                                                                       |                                                                                                                       
|                                                                       |                                                                                                                       
|/s/ Patrick C. Botts                                                   | /s/ Timothy J. McArdle                                                                                                
|Patrick C. Botts, Director                                             | Timothy J. McArdle, Senior Vice President, Treasurer and Controller
    *(Principal Financial and Accounting Officer)*
|                                                                       |                                                                                                                       
|Date:   March 16, 2006                                                 | Date:  March 16, 2006                                                                                                 



|Number | Description                                                   
|------ | --------------------------------------------------------------
|       |                                                               
|10.1   | Named Executive Officer Salary and Bonus Arrangements for 2006
|       |                                                               
|10.2   | Director Fee Arrangements for 2006                            
|       |                                                               
|21     | Subsidiaries of the Registrant                                
|       |                                                               
|23     | Consent of Accountants                                        
|       |                                                               
|31.1   | Rule 13(a)-14(a) Certification (Chief Executive Officer)      
|       |                                                               
|31.2   | Rule 13(a)-14(a) Certification (Chief Financial Officer)      
|       |                                                               
|32     | Section 1350 Certification