NOTE 1: Basis of Presentation

The consolidated financial statements include the accounts of MutualFirst Financial, Inc. (the "Company"), its wholly owned subsidiary, Mutual Federal Savings Bank, a federally chartered savings bank ("Mutual Federal"), and Mutual Federal's two wholly owned subsidiaries, First MFSB Corporation and Third MFSB Corporation. All significant inter-company accounts and transactions have been eliminated in consolidation.

Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K annual report for 2001 filed with the Securities and Exchange Commission.

The interim consolidated financial statements at September 30, 2002, and for the three and nine month periods ended September 30, 2002 have not been audited by independent accountants, but in the opinion of management, reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for such periods. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

The Consolidated Condensed Balance Sheet of the Company as of December 31, 2001 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

NOTE 2: Benefit Plans

On December 1, 2000, the stockholders of the Company approved a Stock Option Plan and a Recognition and Retention Plan (RRP). These plans allow for the purchase in the open market or through the issuance of authorized and unissued shares of up to 581,961 shares of common stock for the Stock Option Plan and 232,784 shares of common stock for the RRP. Under the Stock Option Plan, stock option rights covering 581,961 shares of stock may be granted to officers, key employees and directors of the Company and its subsidiaries. Options for 507,000 of such shares were granted effective January 12, 2001. The options have an exercise price per share equal to the market value at the date of grant. Of the options granted, 247,248 have a 15-year term and 259,752 have a 10-year term. 212,000 of these options become exercisable at the rate of 33.3% per year and 295,000 become exercisable at a rate of 20% per year. Under the RRP plan, stock awards covering 232,784 shares of common may be awarded to the directors and key employees of the Company and its subsidiaries. Grants of 209,000 of such shares have been awarded effective January 12, 2001. Beginning March 20, 2001, 122,000 of these shares vest at a rate of 20% per year and 77,500 vest at a rate of 33.3% per year, and 9,500 shares were fully vested as of March 20, 2002. Expense under the RRP plan was $188,000 and $579,000 for the three- and nine-month periods ended September 30, 2002, respectively.

NOTE 3: Earnings per share

Earnings per share were computed as follows:

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

General

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

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

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

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

Critical Accounting Policies

The notes to the consolidated financial statements contain a summary of the Company's significant accounting policies presented on pages 22 and 23 of the Annual Report to Shareholders for the year ended December 31, 2001. Certain of these policies are important to the portrayal of the Company'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 and real estate held for development and the valuation of intangible assets.

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.

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.

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.

Intangible Assets

The Company 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 it implied fair value. If actual external conditions and future operating results differ from the Company's judgments, impairment and/or increased amortization charges may be necessary to reduce the carrying value of these assets to the appropriate value.

Forward Looking Statements

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

Financial Condition

Assets totaled $784.5 million at September 30, 2002, an increase of $15.2 million from $769.3 million at December 31, 2001. The primary reason for the increase was an $11.3 million increase in loans, including loans held for sale, from $653.6 million at December 31, 2001 to $665.0 million at September 30, 2002. Also, investment securities available for sale increased $10.9 million from $31.6 million at December 31, 2001 to $42.5 million at September 30, 2002. These increases were partially offset by a reduction of cash and cash equivalents from $30.6 million at December 31, 2001, to $22.6 million at September 30, 2002 to help fund the increases in loans and investments. Excluding loans held for sale, the real estate mortgage loan portfolio decreased $6.4 million during the period. Consumer loans increased $15.9 million and commercial business loans increased $6.9 million.

Allowance for loan losses increased $1.2 million from $5.4 million at December 31, 2001 to $6.6 million at September 30, 2002. The Company determined to increase its allowance primarily due to an increase in classified commercial and one- to four- family real estate loans. This was partially accomplished through the recovery of two large loan losses totaling $800,000. Net charge offs for the first nine months of 2002 were $188,000 or .04% of average loans on an annualized basis, compared to $2.1 million, or .43% for the first nine months of 2001, which included a large commercial loan charge-off.

Total deposits were $555.7 million at September 30, 2002 an increase of $16.8 million or 3.1% from $538.9 million at December 31, 2001. Of this growth, $8.6 million was in non-interest bearing deposits. Total borrowings increased $9.5 million to $120.3 million at September 30, 2002 from $110.7 million at December 31, 2001 to fund loan growth and share repurchases.

Stockholders' equity decreased $13.9 million to $95.8 million at September 30, 2002 from $109.7 million at December 31, 2001. The decrease was due primarily to the repurchase of 1.1 million shares of common stock for $19.7 million and dividend payments of $1.6 million. These decreases were partially offset by net income of $6.2 million, Employee Stock Ownership Plan (ESOP) shares earned of $431,000, and RRP shares earned of $579,000. Also, unrealized gain on securities available for sale increased $133,000.

Comparison of the Operating Results for the Three Months Ended September 30, 2002 and 2001

Net income for the quarter ended September 30, 2002 was $2.3 million, or $.44 for basic and $.43 for diluted earnings per share. This compared to net income for the comparable period in 2001 of $2.1 million, or $.31 for both basic and diluted earnings per share. Annualized return on average assets was 1.19% and return on average equity was 9.50% for the third quarter of 2002, compared to 1.10% and 7.25%, respectively, for the same period last year.

Interest income decreased $1.1 million, or 8.2%, from $13.7 million for the three months ended September 30, 2001 to $12.6 million for the three months ended September 30, 2002 due to a decrease in the yield on average interest-earning assets from 7.76% for the 2001 period to 7.02% for the 2002 period. Average interest-earning assets increased from $704.9 million during the three months ended September 30, 2001 to $715.4 million during the comparable period in 2002. Interest expense decreased $1.5 million, or 20.4%, from $7.2 million for the three months ended September 30, 2001, to $5.7 million for the three months ended September 30, 2002 due to a decrease in the cost of average interest-bearing liabilities from 4.49% for the 2001 period to 3.42% for the 2002 period. Average interest-bearing liabilities increased from $638.5 million during the three months ended September 30, 2001 to $667.2 million during the comparable period in 2002. As a result, net interest income for the three-month period ended September 30, 2002, increased $348,000, or 5.4%, compared to the same period in 2001. The average interest rate spread increased from 3.27% for the three-month period ended September 30, 2001, to 3.60% for the comparable period in 2002 as yields on interest earning-assets continued to decrease at a slower rate than the decrease in the cost of interest-bearing liabilities.

The provision for loan losses for the third quarter of 2002 was $375,000 compared to $607,000 for the same period in 2001. Non-performing loans to total loans at September 30, 2002, were .86% compared to .87% at September 30, 2001. Non-performing assets to total assets were .90% at September 30, 2002, compared to .91% at September 30, 2001. The non-performing commercial properties are comprised primarily of two nursing home loans totaling $1.8 million and four other loans totaling $536,000. Specific reserves of $150,000 have been established on these loans. Negotiations are in progress with the owners and possible buyers to satisfy these obligations.

Non-interest income, excluding net gain on loan sales, was essentially flat at $1.2 million for the three-months ended September 30, 2002 compared to the same period in 2001. During the third quarter of 2002, there was a gain of $573,000 on the sale of residential mortgage loans, compared to a $335,000 gain for the same period in 2001.

Non-interest expense increased $400,000 or 8.9% to $4.9 million for the three months ended September 30, 2002 compared to $4.5 million for the same period in 2001. Salaries and employee benefits were $3.1 million for the three months ended September 30, 2002 compared to $2.8 million for the 2001 period, an increase of $253,000 or 9.0%. The increase in salaries and benefits included an $87,000 increase in health insurance premium costs, increased ESOP expense due to the increase in the Company's stock price, staffing increases in the lending area due to increased activity, and annual pay increases. All other expenses increased $147,000 or 8.7% for the three-month period ended September 30, 2002 compared to the same period in 2001.

Income tax expense increased $179,000 for the three-months ended September 30, 2002, compared to the same period in 2001. The increase resulted from increased taxable income, and an increase in the effective tax rate from 27.1% to 29.4%.

Comparison of the Operating Results for the Nine-Months Ended September 30, 2002 and 2001.

Net income for the nine month period ended September 30, 2002 was $6.2 million or $1.11 for basic and $1.09 for diluted earnings per share. This compared to $6.0 million or $.84 for basic and $.83 for diluted earnings per share for the comparable period in 2001. The increase in diluted earnings per share was a result of increased earnings and share repurchases during the period and represented a 31.3% improvement. The annualized return on average assets was 1.07% and the annualized return on average equity was 8.04% for the first nine months of 2002, compared to 1.04% and 6.59%, respectively, for the same period in 2001.

Interest income decreased $3.8 million, or 9.1% from $41.8 million for the nine months ended September 30, 2001 to $38.0 million for the nine months ended September 30, 2002 due to a decrease in the yield on average interest-earning assets from 7.93% for the 2001 period to 7.14% for the 2002 period. Average interest-earning assets increased from $703.8 million during the nine months ended September 30, 2001 to $709.7 million during the comparable period in 2002. Interest expense decreased $4.7 million, or 21.0% from $22.4 million for the nine months ended September 30, 2001 to $17.7 million for the same period in 2002 due to a decrease in the cost of average interest-bearing liabilities from 4.73% for the 2001 period to 3.60% for the 2002 period. Average interest-bearing liabilities increased from $632.0 million during the nine months ended September 30, 2001 to $656.9 million during the comparable period in 2002. As a result, net interest income for the nine-month period ended September 30, 2002 increased $884,000 or 4.6% compared to the same period in 2001. The average interest rate spread increased from 3.2% for the nine months ended September 30, 2001 to 3.6% for the comparable period in 2002 as yields on interest-earnings assets decreased at a slower rate than the decrease in the cost of interest-bearing liabilities.

The non-interest income increased $247,000 or 6.1% for the nine months ended September 30, 2002 compared to the same period last year. Gain on sale of loans increased $130,000 to $776,000 for 2002 period compared to $645,000 in the 2001 period.

Non-interest expense increased $464,000 to $14.7 million for the nine months ended September 30, 2002 compared to $14.2 million for the same period in 2001. Salaries and employee benefits increased $429,000. The reasons for the increase can be attributed to additional health insurance premium costs, increased ESOP expense due to the increase in the Company's stock price and normal salary increases. Net occupancy expenses increased $137,000 from $672,000 for the nine months ended September 30, 2001 to $809,000 for the same period in 2002. This increase can be attributed primarily to an increase in property tax accruals due to reassessments and increased tax rates. All other non-interest expense categories decreased $103,000 for the nine months ended September 30, 2002 compared to the same period in 2001 for a variety of reasons, including realized synergies as a result of the December 2000 merger with Marion Capital Holdings.

Income tax expense increased $219,000 for the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. The increase resulted from increased taxable income and an increase in the effective tax rate from 26.5% to 27.7%.

Liquidity and Capital Resources

The standard measure of liquidity for savings associations is the ratio of cash and eligible investments to a certain percentage of the net-withdrawable savings accounts and borrowings due within one year. As of September 30, 2002, Mutual Federal had liquid assets of $61.4 million and a liquidity ratio of 9.13%.

Item 3. Quantitative and Quantitative Disclosures about Market Risk

Presented below as of September 30, 2002 and 2001 is an analysis of Mutual Federal's interest rate risk as measured by changes in Mutual Federal's net portfolio value ("NPV") assuming an instantaneous and sustained parallel shift in the yield curve, in 100 basis point increments, up 300 basis points and down 300 basis points.

September 30, 2002

Net Portfolio Value

September 30, 2001

Net Portfolio Value

The analysis at September 30, 2002 indicates that there have been no material changes in market interest rates for Mutual Federal's interest rate sensitivity instruments which would cause a material change in the market risk exposures that effect the quantitative and qualitative risk disclosures as presented in item 7A of the Company's annual report on Form 10-K for the period ended December 31, 2001.

Item 4. Controls and Procedures.

         (a) Evaluation of Disclosure Controls and Procedures: An evaluation of the Company's disclosure controls and procedures (as defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the "Act")) was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management within the 90-day period preceding the filing date of this quarterly report. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief 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.

         (b) Changes in Internal Controls: In the quarter ended September 30, 2002, the Company did not make any significant changes in, nor take any corrective actions regarding, its internal controls or other factors that could significantly affect these controls.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

             None.

Item 2. Changes in Securities and use of Proceeds

             None.

Item 3. Defaults Upon Senior Securities.

             None.

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

             None.

Item 5. Other Information.

             None.

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

             (a) No reports on Form 8-K were filed during the quarter ended September 30, 2002.

Each of the undersigned hereby certifies in his capacity as an officer of MutualFirst Financial, Inc. (the "Company") that the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2002 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

CERTIFICATIONS

         I, R. Donn Roberts, Principal Executive Officer, certify that:

         1.         I have reviewed this quarterly report on Form 10-Q of MutualFirst Financial, Inc. (the "Registrant");

         2.         Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

         3.         Based on my knowledge, the consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

         4.         The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

                  a)         designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

                  b)         evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

                  c)         presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

         5.         The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function):

                  a)         all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and

                  b)         any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and

         6.         The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

         I, Timothy J. McArdle, Principal Financial Officer, certify that:

         1.         I have reviewed this quarterly report on Form 10-Q of MutualFirst Financial, Inc. (the "Registrant");

         2.         Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

         3.         Based on my knowledge, the consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

         4.         The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

                  a)         designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

                  b)         evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

                  c)         presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

         5.         The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function):

                  a)         all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and

                  b)         any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and

         6.         The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.