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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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 June 30, 2004, was 4,949,445.

FORM 10 - Q

MutualFirst Financial, Inc.

INDEX

Signature Page

PART 1    FINANCIAL INFORMATION

ITEM 1.     Financial Statements

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
Consolidated Condensed Statement of Stockholders' Equity
For the Six Months Ended June 30, 2004
(Unaudited)

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

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 wholly owned subsidiary, Second 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 2003 filed with the Securities and Exchange Commission.

The interim consolidated financial statements at June 30, 2004 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, 2003 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date.

The Company has a stock-based employee compensation plan that is described more fully in Notes to Financial Statements included in the December 31, 2003 Annual Report to Stockholders. The Company accounts for this plan under the recognition and measurement principles of APB 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. (Dollars in thousands except for per share data)

Note 2:  Earnings per share

Earnings per share were computed as follows: (Dollars in thousands except per share data)

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 eighteen 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 of the Federal Deposit Insurance Corporation insures Mutual Federal's deposit accounts up to applicable limits.

Mutual Federal currently owns one subsidiary, First MFSB Corporation. The assets of First MFSB Corporation consist of an investment in Family Financial Holdings Incorporated. Family Financial is an ordinary Indiana corporation that provides debt cancellation products to financial institutions.

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 23 to 25 of the Annual Report to Stockholders for the year ended December 31, 2003. 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.

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 its 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; and regulatory changes.

The Company does not undertake - and specifically disclaims any obligation - to publicly release the result of any revisions which may be made to 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.

Financial Condition

Assets totaled $818.4 million at June 30, 2004, a decrease from December 31, 2003 of $5.4 million, or .7%. Gross loans, excluding loans held for sale, decreased $6.1 million, or .9%. Consumer loans increased $2.8 million, or 1.5%, and commercial business loans increased $3.8 million, or 8.6%, while residential and commercial mortgage loans held in the portfolio decreased $12.0 million, or 2.5%. The primary reason for the decrease was the sale of fixed rate mortgage loans during the first half of the year, totaling $29.6 million, in order to reduce our interest rate risk exposure.

Allowance for loan losses increased $241,000 from $6.8 million at December 31, 2003 to $7.0 million at June 30, 2004. Net charge offs for the first half of 2004 were $516,000 or .15% of average loans on an annualized basis compared to $497,000, or .15% of average loans for the comparable period in 2003. As of June 30, 2004, the allowance for loan losses as a percentage of non-performing loans and loans receivable was 179.59% and 1.00%, respectively, compared to 208.26% and .95%, respectively at December 31, 2003.

Total deposits were $570.6 million at June 30, 2004, a decrease of $8.7 million, or 1.5% from December 31, 2003. This decrease consists of a $17.8 million decrease in volatile short term public funds offset by a $9.1 million increase in retail deposits. This increase in retail deposits consists of a $16.9 million increase in core savings, checking and DMMA accounts offset by the $7.8 million decrease in certificates in deposit. Total borrowings increased $8.2 million to $145.3 million at June 30, 2004 from $137.1 million at December 31, 2003, to offset the overall decrease in deposits.

Stockholders' equity decreased $5.3 million, or 5.4%, from $97.5 million at December 31, 2003, to $92.2 million at June 30, 2004. The decrease was due primarily to the repurchase of 365,385 shares of common stock for $8.6 million and dividend payments of $1.2 million. These decreases were partially offset by net income of $3.8 million, Employee Stock Ownership Plan (ESOP) shares earned of $379,000, and RRP shares earned of $300,000. Also, the market value of securities available for sale compared to their book value decreased $279,000 from a gain of $234,000 at December 31, 2003 to a loss of $45,000 at June 30, 2004.

Comparison of the Operating Results for the Three Months Ended June 30, 2004 and 2003

Net income for the quarter ended June 30, 2004 was $1.8 million, or $.38 for basic and $.37 for diluted earnings per share. This compared to net income for the comparable period in 2003 of $2.4 million, or $.49 for basic and $.47 for diluted earnings per share. Annualized return on average assets was .89% and return on average equity was 7.59% for the second quarter of 2004, compared to 1.21% and 10.15%, respectively, for the same period last year.

Interest income decreased $689,000, or 5.9%, from $11.7 million for the three months ended June 30, 2003 to $11.0 million for the three months ended June 30, 2004 due to a decrease in the yield on average interest-earning assets from 6.47% for the 2003 period to 5.91% for the 2004 period. The decrease in average yield was partially offset by an increase in average interest-earning assets from $725.7 million during the three months ended June 30, 2003 to $747.7 million during the second quarter in 2004. Interest expense decreased $618,000, or 12.8%, from $4.8 million for the three months ended June, 2003, to $4.2 million for the three months ended June 30, 2004 due to a decrease in the average cost of interest-bearing liabilities from 2.83% for the 2003 period to 2.39% for the 2004 period. The decrease in average cost was partially offset by an increase in the average interest-bearing liabilities from $682.2 million during the three months ended June 30, 2003 to $705.2 million during the comparable period in 2004. As a result, net interest income decreased $72,000 from $6.9 million for the three months ended June 30, 2003, to $6.8 million for the three months ended June 30, 2004.

The net interest margin decreased from 3.81% for the three-month period ended June 30, 2003, to 3.66% for the comparable period in 2004 as yields on interest-earning assets decreased at a slightly faster rate than the decrease in the cost of interest-bearing liabilities. This lower margin was partially offset by a $22.0 million increase in average interest-earning assets when comparing the second quarter of 2004 to that of 2003. On a sequential basis, the net interest margin increased from 3.64% for the first quarter of this year to 3.66% for the current quarter. This is the second successive quarter that the interest margin has increased as the net interest margin for the fourth quarter of 2003 was 3.59%. It appears that the interest rate cycle is beginning to shift to a rising rate environment. If this continues, our interest margin should increase over the next several quarters given the asset sensitive nature of our balance sheet on a short term basis.

The provision for loan losses for the second quarter of 2004 was $530,000, compared to $375,000 for last year's comparable period. Non-performing loans to total loans at June 30, 2004 were .55% compared to .58% at June 30, 2003. Non-performing assets to total assets were .57% at June 30, 2004 compared to .68% at June 30, 2003. The reason for the increased loan loss provision was the re-classification of two non-performing commercial credits totaling $720,000 from substandard to doubtful. With this quarter's addition to the loan loss provision management believes loan loss reserves to be adequate.

Non-interest income decreased $522,000 or 26.2%, to $1.5 million for the three months ended June 30, 2004 compared to $2.0 million for the same period in 2003. Due to reduced mortgage refinancing activity in the 2004 quarter, gain on sale of loans (including a $140,000 reduction in mortgage servicing rights reserve) was $217,000, down from $573,000 in the comparable 2003 quarter. Also, the increase in cash surrender value of life insurance was $255,000 less for the second quarter in 2004 when compared to the comparable 2003 quarter due to the receipt of life insurance proceeds in 2003 following the death of a former director of Marion Capital Holdings Inc. (a December, 2000 merger partner).

Non-interest expense remained steady at $5.2 million when comparing the three months ended June 30, 2004 to the same period in 2003.

Income tax expense decreased $182,000 for the three months ended June 30, 2004 compared to the same period in 2003. The decrease resulted from decreased taxable income, partially offset by an increase in the effective tax rate from 28.3% to 29.6% was due to a decrease in available low-income housing credits.

Comparison of the Operating Results for the Six-Months Ended June 30, 2004 and 2003.

Net income for the six months ended June 30, 2004 was $3.8 million or $.79 for basic and $.77 for diluted earnings per share. This compared to net income for the comparable period in 2003 of $4.5 million or $.89 for basic and $.86 for diluted earnings per share. The 10.5% decrease in diluted earnings per share was primarily a result of reduced gain on sale of mortgage loans and smaller cash surrender value appreciation when compared to the same period in 2003. Annualized return on average assets was .93% and return on average equity was 7.84% for the first half of 2004 compared to 1.14% and 9.41% respectively, for the same period of last year.

Interest income decreased $1.3 million, or 5.5% from $23.5 million for the six months ended June 30, 2003 to $22.2 million for the six months ended June 30, 2004. Interest expense decreased $1.2 million, or 12.4% from $9.8 million for the six months ended June 30, 2003 to $8.6 million for the same period in 2004. As a result, net interest income decreased $69,000 for the six months ended June 30, 2004 compared to the six months ended June 30, 2003. The net interest margin decreased from 3.83% for the six-month period ended June 30, 2003, to 3.65% for the comparable period in 2004 as yields on interest-earning assets decreased at a slightly faster rate than the decrease in the cost of interest-bearing liabilities. This lower margin was partially offset by a $31.4 million increase in average interest-earning assets when comparing the first half of 2004 to that of 2003. As market rates reverse their downward trend and begin increasing, our margin should increase slightly due to the asset sensitive nature of our balance sheet on a short term basis.

Non-interest income for the six months ended June 30, 2004 decreased $388,000 from $3.4 million for the six months ended June 30, 2003 to $3.0 million. Due to reduced mortgage refinancing activity in the first half of 2004 quarter, gain on sale of loans (including a $140,000 reduction in mortgage servicing rights reserve) was $612,000, down from $923,000 in the comparable 2003 period. Also, the increase in cash surrender value of life insurance was $291,000 less for the first half in 2004 when compared to the comparable 2003 period due to the receipt of life insurance proceeds in 2003 following the death of a former director of Marion Capital Holdings Inc. (a December, 2000 merger partner). These decreases were partially offset by a gain in equity of limited partnerships of $22,000 in the first half of 2004 compared to a loss of $225,000 in the comparable period in 2003.

For the six-month period, non-interest expense was up $395,000 when comparing the first half of 2004 to the same period in 2003. The majority of this increase was due to a $116,000 increase in health insurance premium costs, a reduction of deferred compensation relating to mortgage originations of $106,000, and a $106,000 increase in the cost of RRP and ESOP plans due to increased market value of Company stock compared to the first six months of 2003.

For the six-month period ended June 30, 2004, income tax expense decreased $182,000 compared to the same period in 2003. The decrease was due primarily to decreased taxable income, partially offset by an increase in the effective tax rate from 28.5% to 29.7%.

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 June 30, 2004, Mutual Federal had liquid assets of $56.5 million and a liquidity ratio of 8.02 %.

Item 3:  Quantitative and Qualitative Disclosures about Market Risk

Presented below as of June 30, 2004 and 2003 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.

June 30, 2004

Net Portfolio Value

The analysis at June 30, 2004 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, 2003.

Item 4.  Controls and Procedures.

The Company intends to continually review and evaluate the design and effectiveness of its disclosure controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company's business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures.

PART II.      OTHER INFORMATION

(1)   Amount represents the number of shares available to be repurchased under the plan as of March 31, 2004.

(1)   Amount represents the number of shares available to be repurchased under the plan as of March 31, 2004.

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.