Back to GetFilings.com



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2003
 
OR
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _______________

Commission File Number: 000-27905


MutualFirst Financial, Inc.
(Exact Name of registrant specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization)		 35-2085640
(I.R.S. Employer
Identification Number)


110 East Charles Street
Muncie, Indiana 47305
(765) 747-2800
(Registrant's telephone number, including area code)

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 report), and (2) has been subject to such filing requirements for the past 90 days.
  Yes  [X]    No[   ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
  Yes  [X]    No[   ]

The number of shares of the Registrant's common stock, with $.01 par value, outstanding as of March 31, 2003 was 5,275,774.






Next Page




FORM 10 - Q
MutualFirst Financial, Inc.

INDEX


PART I - FINANCIAL INFORMATION		 Page
Number
 
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
March 31, 2003 and December 31, 2002 1
Consolidated Condensed Statement of Income for the 
three months ended March 31, 2003 and 
March 31, 2002 2
Consolidated Condensed Statement of Stockholders' Equity
for the three months ended March 31, 2003 3
Consolidated Condensed Statements of Cash Flows for the
three months ended March 31, 2003 and March 31, 2002 4-5
Notes to Unaudited Consolidated Condensed Financial Statements6-7
 
Item 2. Management's Discussion and Analysis of Financial Condition 
and Results of Operations 8-11
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
 
Item 4. Controls and Procedures 13
 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings 14
 
Item 2. Changes in Securities and Use of Proceeds 14
 
Item 3. Defaults Upon Senior Securities 14
 
Item 4. Submission of Matters to a Vote of Security Holders 14
 
Item 5. Other Information 14
 
Item 6. Exhibits and Reports on Form 8-K 14
 
Signature Page 15
 
Certifications 16-17






i
Next Page



PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
Consolidated Condensed Balance Sheets

March 31,
2003
(Unaudited) 		December 31,
2002
Assets
Cash $  16,720,812  $  17,986,004 
Interest-bearing deposits 2,377,036 
 5,633,953 
Cash and cash equivalents 19,097,848  23,619,957 
Investment securities available for sale 37,697,541  42,362,138 
Loans held for sale 3,878,538  7,850,711 
Loans 660,841,600  647,398,940 
Allowance for loan losses (6,439,213)
 (6,285,959)
Net loans 654,402,387  641,112,981 
Premises and equipment 9,419,569  9,186,501 
Federal Home Loan Bank of Indianapolis stock, at cost 6,993,400  6,993,400 
Investment in limited partnerships 5,350,782  5,616,485 
Cash surrender value of life insurance 25,733,308  25,439,308 
Foreclosed real estate 1,160,861  1,472,865 
Interest receivable 3,246,659  3,201,001 
Core deposit intangibles and goodwill 918,032  921,462 
Deferred income tax benefit 4,165,107  4,118,344 
Other assets 4,408,956 
 3,902,506 
Total assets $776,472,988 
 $775,797,659 
Liabilities
Deposits
Non-interest-bearing $31,501,118  $28,908,935 
Interest bearing 524,410,126 
 521,455,008 
Total deposits 555,911,244  550,363,943 
Federal Home Loan Bank advances 112,420,486  115,403,203 
Other borrowings 2,868,558  2,883,631 
Advances by borrowers for taxes and insurance 2,389,987  1,334,768 
Interest payable 1,380,159  1,015,977 
Other liabilities 8,352,490 
 8,079,011 
Total liabilities 683,322,924 
 679,080,533 
Commitments and Contingent Liabilities
Stockholders' Equity
Preferred stock, $.01 par value
Authorized and unissued --- 5,000,000 shares
Common stock, $.01 par value
Authorized --- 20,000,000 shares
Issued and outstanding --- 5,275,774 and 5,523,052 shares  52,758  55,231 
Additional paid-in capital 33,549,946  38,782,755 
Retained earnings 63,326,101  61,779,695 
Accumulated other comprehensive income 394,306  464,452 
Unearned employee stock ownership plan (ESOP) shares (3,416,646) (3,496,106)
Unearned recognition and retention plan (RRP) shares (756,401)
 (868,901)
Total stockholders' equity 93,150,064 
 96,717,126 
Total liabilities and stockholders' equity $776,472,988 
 $775,797,659 

See notes to consolidated condensed financial statements.


1
Next Page



MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
Consolidated Condensed Statements of Income
(Unaudited)

Three Months Ended March 31
2003
 2002
Interest Income
Loans receivable, including fees $11,315,969  $12,214,887 
Investment securities:
      Mortgage-backed securities 157,158  154,116 
Federal Home Loan Bank stock 101,203  103,464 
Other investments 190,093  216,590 
Deposits with financial institutions 26,210 
 65,895 
Total interest income 11,790,633 
 12,754,952 
Interest Expense
Passbook savings 95,122  159,552 
Certificates of deposit 3,321,615  4,226,990 
Daily Money Market accounts 124,130  209,710 
Demand and NOW accounts 49,331  119,937 
Federal Home Loan Bank advances 1,357,735  1,384,264 
Other interest expense 15,606 
 24,710 
Total interest expense 4,963,539 
 6,125,163 
Net Interest Income   6,827,094  6,629,789 
Provision for losses on loans 375,000 
 587,483 
Net Interest Income After Provision for Loan Losses 6,452,094 
 6,042,306 
Other Income
Service fee income 698,895  606,672 
Equity in losses of limited partnerships (146,442) (37,390)
Commissions 175,109  189,124 
Net gains on loan sales 350,063  0 
Increase in cash surrender value of life insurance 294,000  300,000 
Other income 34,211 
 113,299 
         Total other income 1,405,836 
 1,171,705 
Other Expenses
Salaries and employee benefits 3,256,208  3,008,935 
Net occupancy expenses 284,788  241,986 
Equipment expenses 243,973  197,746 
Data processing fees 158,687  193,748 
Automated teller machine  114,399  85,456 
Deposit insurance expense 23,149  24,167 
Advertising and promotion 95,215  93,492 
Goodwill amortization 3,431  45,140 
Other expenses 775,332 
 769,611 
Total other expenses 4,955,182 
 4,660,281 
Income Before Income Tax 2,902,748  2,553,730 
Income tax expense 835,300 
 669,600 
Net Income $2,067,448 
 $1,884,130 
Basic earnings per share $0.42  $0.32 
Diluted earnings per share $0.40  $0.32 
Dividends per share $0.10  $0.09 

See notes to consolidated condensed financial statements.

2
Next Page



MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
Consolidated Condensed Statement of Stockholders' Equity
For the Three Months Ended March 31, 2003
(Unaudited)

Common Stock
 Additional
paid-in
capital
 Compre-
hensive
Income
 Retained
Earnings
 Accumulated
Other
Compre-
hensive
Income
 Unearned
ESOP
shares
 Unearned
RRP
shares
 Total
Shares
Outstanding
 Amount
Balances, December 31, 2002 $5,523,052  $55,231  $38,782,755  $61,779,695  $464,452  ($3,496,106) ($868,901) $96,717,126 
Comprehensive income
Net income for the period $2,067,448  $2,067,448  2,067,448 
Other comprehensive income, net of tax
   Unrealized gains on securities (70,146)
 (70,146) (70,146)
Comprehensive income $1,997,302 
ESOP shares earned 88,540  79,460  168,000 
Cash dividends ($.10 per share)  (521,042) (521,042)
RRP shares earned 112,500  112,500 
Stock repurchased (254,778) (2,548) (5,430,024) (5,432,572)
Stock options exercised 7,500 
 75 
 108,675 
  
  
  
  
 108,750 
Balances,  December 31, 2002 $5,275,774 
 $52,758 
 $33,549,946 
 $63,326,101 
 $394,306 
 ($3,416,646)
 ($756,401)
 $93,150,064 
See notes to consolidated condensed financial statements.

3
Next Page



MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
Consolidated Condensed Statement of Cash Flows
(Unaudited)

Three Months Ended March 31,
2003
 2002
Operating Activities
Net income $  2,067,448   $  1,884,130 
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 375,000  587,483 
Securities losses 3,293  -   
Net loss on sale of real estate owned 79,936  45,102 
Securities amortization (accretion), net 93,703  5,425 
ESOP shares earned 168,000  129,774 
RRP shares earned  112,500  202,750 
Equity in losses of limited partnerships 146,442  37,390 
Amortization of net loan origination costs 358,501  568,599 
Amortization of core deposit intangibles and goodwill 3,430  45,139 
Depreciation and amortization 233,508  204,633 
Loans originated for sale (6,303,058) -   
Proceeds from sales on loans held for sale 10,625,295  -   
Gains on sales of loans held for sale (350,063) -   
Change in
Interest receivable  (45,658) 66,959 
Other assets  (402,945) (644,715)
Interest payable 364,182  533,208 
Other liabilities 306,368  (53,161)
Increase in cash surrender value of life insurance (294,000)
  (300,000)
        Net cash provided by operating activities 7,541,882 
 3,312,716 
Investing Activities
Purchases of securities available for sale (5,108,885) (3,429,656)
Proceeds from maturities and paydowns of securities available for sale  4,559,578  5,853,778 
Proceeds from sales of securities available for sale 5,000,000  -   
Net change in loans (14,502,073) (8,982,400)
Purchases of premises and equipment (466,576)  (116,810)
Proceeds from real estate owned sales 589,251  374,800 
Distribution from limited partnership 15,755  29,400 
Other investing activities  121,982 
  (25,545)
Net cash used by investing activities (9,790,968)
 (6,296,433)
Financing Activities
Net change in 
Noninterest-bearing, interest bearing demand and savings deposits  6,565,667  2,314,064 
Certificates of deposits  (1,018,366) 1,289,665 
Repayment of note payable  (30,679) (30,679)
Proceeds from FHLB advances 6,500,000  3,280,000 
Repayment of FHLB advances  (9,500,000) (8,000,000)
Net change in advances by borrowers for taxes and insurance 1,055,219  1,052,119 
Stock repurchased  (5,432,572) (5,657,471)
Proceeds from exercise of stock options 108,750  5,000 
Dividends Paid  (521,042)
 (555,410)
Net cash provided by financing activities (2,273,023)
  (6,302,712)
Net Change in Cash and Cash Equivalents (4,522,109)  (9,286,429)
Cash and Cash Equivalents, Beginning of Year 23,619,957 
 30,557,673 
Cash and Cash Equivalents, End of Period  $19,097,848 
 $21,271,244 


4
Next Page





Additional Cash Flows Information
Interest paid  $  4,599,357   $  5,591,955 
Income tax paid 300,000  880,000 
Transfers from loans to foreclosed real estate 479,165  423,848 
Loans held for sale transferred to loans 11,559,158 
Mortgage servicing rights capitalized 103,790     

See notes to consolidated condensed financial statements.


















5
Next Page



MutualFirst Financial, Inc. and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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 2002 filed with the Securities and Exchange Commission.

The interim consolidated financial statements at March 31, 2003 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, 2002 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 87,000 shares were fully vested as of March 20, 2002. Expense under the RRP plan was $112,500 for the three-month period ended March 31, 2003.

Note 3:    Stock Options

The Company has a stock-based employee compensation plan, which is described more fully in Notes to Financial Statements included in the December 31, 2002 Annual Report to shareholders. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the grant date. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.





6
Next Page



Three Months Ended
March 31, 2003
 Three Months Ended
March 31, 2002
(Dollars in thousands,
except per share data)
Net income, as reported  $2,067   $1,884 
Less:  Total stock-based employee 
compensation cost determined under
the fair value based method, net of 
income taxes  $   (39)
  $ (151)
Pro forma net income  $2,028   $1,733 
Earnings per share:
Basic - as reported $0.42  $0.32 
Basic - pro forma $0.41  $0.29 
Diluted - as reported $0.40  $0.32 
Diluted - pro forma $0.39  $0.29 


Note 4:    Effect of Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") adopted Statement of Financial Accounting Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation.

Under the provisions of SFAS No. 123, companies that adopted the fair value based method were required to apply that method prospectively for new stock option awards. This contributed to a "ramp-up" effect on stock-based compensation expense in the first few years following adoption, which caused concern for companies and investors because of the lack of consistency in reported results. To address that concern, SFAS No. 148 provides two additional methods of transition that reflect an entity's full complement of stock-based compensation expense immediately upon adoption, thereby eliminating the ramp-up effect.

SFAS No. 148 also improves the clarity and prominence of disclosures about the proforma effects of using the fair value based method of accounting for stock-based compensation for all companies - regardless of the accounting method used - by requiring that the data be presented more prominently and in a more user-friendly format in the footnotes to the financial statements. In addition, SFAS No. 148 improves the timeliness to those disclosures by requiring that this information be included in interim as well as annual financial statements. In the past, companies were required to make proforma disclosures only in annual financial statements.

The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002.

The FASB has stated it intends to issue a new statement on accounting for stock-based compensation and will require companies to expense stock options using a fair value based method at date of grant. The implementation for this proposed statement is not known.



7
Next Page




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. The Savings Association Insurance Fund (SAIF) of the FDIC insures Mutual Federal's deposit accounts up to applicable limits.

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 to 24 of the Annual Report to Shareholders for the year ended December 31, 2002. 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, mortgage servicing rights and 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.



8
Next Page




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.

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

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 rates; the loss of deposits and loan demand to competitors; substantial changes in financial markets; changes in real estate values and the real estate market; or regulatory changes.



9
Next Page




Financial Condition

Assets totaled $776.5 million at March 31, 2003, an increase of $675,000 from $775.8 million at December 31, 2002. The primary reason for the increase was a $9.4 million increase in loans, including loans held for sale, from $655.3 million at December 31, 2002 to $664.7 million at March 31, 2003. This increase was partially offset by a reduction in investment securities available for sale of $4.7 million from $42.4 million at December 31, 2002 to $37.7 million at March 31, 2003 and a reduction of cash and cash equivalents from $23.6 million at December 31, 2002, to $19.1 million at March 31, 2003 to help fund the increases in loans. Excluding loans held for sale, the real estate mortgage loan portfolio increased $12.2 million during the period. Consumer loans decreased $622,000 and commercial business loans increased $1.9 million.

Allowance for loan losses increased $153,000 from $6.3 million at December 31, 2002 to $6.4 million at March 31, 2003. The Company determined to increase its allowance primarily due to a continued slow economy in some of our market areas. Net charge offs for the first three months of 2003 were $220,000 or .13% of average loans on an annualized basis, compared to $193,000, or ..12% for the first three months of 2002.

Total deposits were $555.9 million at March 31, 2003 an increase of $5.5 million or 1.0% from $550.4 million at December 31, 2002. Of this growth, $2.6 million was in non-interest bearing deposits. Total borrowings decreased $3.0 million to $115.3 million at March 31, 2003 from $118.3 million at December 31, 2002.

Stockholders' equity decreased $3.6 million to $93.1 million at March 31, 2003 from $96.7 million at December 31, 2002. The decrease was due primarily to the repurchase of 255,000 shares of common stock for $5.4 million and dividend payments of $521,000. These decreases were partially offset by net income of $2.1 million, Employee Stock Ownership Plan (ESOP) shares earned of $168,000, and RRP shares earned of $113,000. Also, unrealized gain on securities available for sale decreased $70,000.

Comparison of the Operating Results for the Three Months Ended March 31, 2003 and 2002

Net income for the quarter ended March 31, 2003 was $2.1 million, or $.42 basic and $.40 diluted earnings per share. This compared to net income for the comparable period in 2002 of $1.9 million, or $.32 basic and diluted earnings per share. Annualized return on average assets was 1.07% and return on average equity was 8.68% for the first quarter of 2003, compared to .98% and 7.04%, respectively, for the same period last year.

Interest income decreased $1.0 million, or 7.6%, from $12.8 million for the three months ended March 31, 2002 to $11.8 million for the three months ended March 31, 2003 due to a decrease in the yield on average interest-earning assets from 7.24% for the 2002 period to 6.64% for the 2003 period. Average interest-earning assets increased from $704.3 million during the three months ended March 31, 2002 to $710.0 million during the comparable period in 2003. Interest expense decreased $1.1 million, or 19%, from $6.1 million for the three months ended March 31, 2002, to $5.0 million for the three months ended March 31, 2003 due to a decrease in the average cost of interest-bearing liabilities from 3.78% for the 2002 period to 2.99% for the 2003 period. Average interest-bearing liabilities increased from $647.9 million during the three months ended March 31, 2002 to $664.9 million during the comparable period in 2003. As a result, net interest income for the three-month period ended March 31, 2003, increased $197,000, or 3.0%, compared to the same period in 2002. The average interest rate spread increased from 3.47% for the three-month period ended March 31, 2002, to 3.67% for the comparable period in 2003 as yields on interest earning-assets continued to decrease at a slower rate than the decrease in the cost of interest-bearing liabilities.



10
Next Page




The provision for loan losses for the first quarter of 2003 was $375,000 compared to $587,000 for the same period in 2002. Non-performing loans to total loans at March 31, 2003 were .71% compared to 1.03% at March 31, 2002. Non-performing assets to total assets were .81% at March 31, 2003, compared to 1.07% at March 31, 2002. The non-performing commercial properties are 43.1% of non-performing loans. The non-performing commercial loans are comprised primarily of two nursing home loans totaling $1.5 million and three other loans totaling $481,000. Negotiations are in progress with the owners and possible buyers to satisfy these obligations.

Non-interest income, excluding net gain on loan sales, decreased $116,000 for the three-months ended March 31, 2003 compared to the same period in 2002. This was primarily due to increased losses of $109,000 in the limited partnerships in the first quarter of 2003 compared to the comparable period in 2002. During the first quarter of 2003, there was a gain of $350,000 on the sale of residential mortgage loans, compared to no gain for the same period in 2002.

Non-interest expense increased $295,000 or 6.3% to $5.0 million for the three months ended March 31, 2003 compared to $4.7 million for the same period in 2002. Salaries and employee benefits were $3.3 million for the three months ended March 31, 2003 compared to $3.0 million for the 2002 period, an increase of $247,000 or 8.2%. The change in salaries and benefits included a $208,000 increase in health insurance premium costs due to increased health care costs and an increased level of claims experience. Also included was a $41,000 increase in our ESOP expense due to the increase in the market value of our stock. All other expenses increased $48,000 or 2.9% for the three-month period ended March 31, 2003 compared to the same period in 2002

Income tax expense increased $166,000 for the three months ended March 31, 2003 compared to the same period in 2002. The increase resulted from increased taxable income and an increase in the effective tax rate from 26.2% to 28.8% due to less non- taxable income.

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 March 31, 2003, Mutual Federal had liquid assets of $56.4 million and a liquidity ratio of 8.47 %.








11
Next Page




ITEM 3 - Quantitative and Quantitative Disclosures about Market Risk

Presented below as of March 31, 2003 and 2002 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 200 basis points.

March 31, 2003
Net Portfolio Value

Changes
In Rates
 $ Amount
 $ Change
 % Change
 NPV as % of PV of Assets
NPV Ratio
 Change
+300 bp 65,799 -26,181 -28% 9.03% -265 bp
+200 bp 76,613 -15,367 -17% 10.23% -145 bp
+100 bp 85,765 -6,215 -7% 11.16% -52 bp
0 bp 91,980 11.68%
-100 bp 88,961 -3,019 -3% 11.13% -55 bp
-200 bp 89,402 -2,578 -3% 11.02% -66 bp
-300 bp  n/m(1) n/m(1) n/m(1) n/m(1) n/m(1)


March 31, 2002
Net Portfolio Value

Changes
In Rates
 $ Amount
 $ Change
 % Change
 NPV as % of PV of Assets
NPV Ratio
 Change
+300 bp 72,708 -31,150 -30% 10.22% -332 bp
+200 bp 82,838 -21,020 -20% 11.36% -217 bp
+100 bp 94,011 -9,847 -9% 12.57% -96 bp
0 bp 103,858 13.53%
-100 bp 111,961 8,103 8% 14.23% +70 bp
-200 bp 112,537 8,679 8% 14.08% +55 bp
-300 bp  n/m(1) n/m(1) n/m(1) n/m(1) n/m(1)
_______________
(1)   Not meaningful becasue some market rates would compute to a rate less than zero.

The analysis at March 31, 2003 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, 2002.



12
Next Page




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, Principal 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 Principal 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 the 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.
   
(b) Changes in Internal Controls: In the quarter ended March 31, 2003, 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.




















13
Next Page



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) Exhibits
    
                               Exhibit 99.1 - Certificate of the Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    
(b) No reports on Form 8-K were filed during the quarter ended March 31, 2003.





14
Next Page



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


MutualFirst Financial, Inc.
   
 
Date: May 14, 2003 By: /s/ R. Donn Roberts
R. Donn Roberts
President and Chief Executive Officer
 
Date: May 14, 2003 By: /s/ Timothy J. McArdle
Timothy J. McArdle
Senior Vice President and Treasurer
(Principal Financial and Accounting Officer)












15
Next Page



CERTIFICATIONS


I, R. Donn Roberts, certify that:
          1. I have reviewed this quarterly report on Form 10-Q of MutualFirst Financial, Inc.;
         
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 financial statements, and other financial information included in this quarterly report, fairly present in all material respects the 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 officers 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 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 officers 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 functions):
         
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 officers 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.


Date: May 14, 2003 By: /s/ R. Donn Roberts
R. Donn Roberts
President and Chief Executive Officer


16
Next Page






CERTIFICATIONS


          I, Timothy J. McArdle, certify that:
         
1. I have reviewed this quarterly report on Form 10-Q of MutualFirst Financial, Inc.;
         
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 financial statements, and other financial information included in this quarterly report, fairly present in all material respects the 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 officers 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 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 officers 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 functions):
         
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 officers 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.


Date: May 14, 2003 By: /s/ Timothy J. McArdle
Timothy J. McArdle
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)




17
End.