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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 September 30, 2004, was 4,781,778.

FORM 10 - Q

MutualFirst Financial, Inc.

INDEX

Signature Page

PART 1 FINANCIAL INFORMATION

ITEM 1. Financial Statements

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
Consolidated Condensed Balance Sheets

See notes to consolidated condensed financial statements.

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

See notes to consolidated condensed financial statements.

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

See notes to consolidated condensed financial statements.

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

See notes to consolidated condensed financial statements.

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, First 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 September 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:

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.

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 Shareholders 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 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.

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.

Overview

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. The structure of our interest-earning assets versus the structure of interest-bearing liabilities along with the shape of the yield curve has a direct impact on our net interest income.

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

Since 2000 it has been the Company's strategic objective to change the repricing structure of its interest-earning assets from longer term to shorter term to better match the structure of our interest bearing liabilities and therefore reduce the impact interest rate changes have on our net interest income. Strategies employed to accomplish this objective have been to increase the originations of variable rate commercial loans and shorter term consumer loans and to sell longer term mortgage loans. The percentage of consumer and commercial loans to total loans has increased from 35% at the end of 2000 to 44% currently. On the liability side of the balance sheet, the Company is employing strategies to increase the balance of core deposit accounts such as low cost checking and money market accounts. The percentage of core deposits to total deposits has increased from 33% to 38% over this time period. These are ongoing strategies that are dependent on current market conditions and competition.

The Company converted to a public company at the end of 1999, and at the end of 2000 bought a $200 million thrift for stock. Since that time the Company has been buying back the Company's stock to manage capital levels and enhance earnings per share. During the first nine months of 2004, the Company used $12.6 million for this purpose, thereby reducing earning assets from where they otherwise would have been and correspondingly reducing net interest income.

During the same time, in keeping with its strategic objective to reduce interest rate risk exposure, the Company sold $36.6 million of long term fixed rate loans which reduced potential earning assets and therefore had a negative impact on net interest income. This was offset, in the short term, by recognizing a gain on the sale of these loans of $764,000 in the first nine months of this year.

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.

Financial Condition

Assets totaled $830.1 million at September 30, 2004, an increase from December 31, 2003 of $6.4 million, or .8%. Gross loans, excluding loans held for sale, increased $2.3 million, or .3%. Consumer loans increased $5.2 million, or 2.7%, and commercial business loans increased $6.5 million, or 14.6%, while residential and commercial mortgage loans held in the portfolio decreased $9.4 million, or 2.0%. The increase in consumer loans (primarily home equity related) can be attributed to the continued low interest rate environment, while the increase in commercial business loans is primarily due to increased line of credit usage. The primary reason for the decrease in mortgage loans was the sale of fixed rate mortgage loans during the first nine months of the year, totaling $36.6 million, in order to reduce our interest rate risk exposure.

Allowance for loan losses increased $244,000 from $6.8 million at December 31, 2003 to $7.0 million at September 30, 2004. Net charge offs for the first nine months of 2004 were $865,000 or .16% of average loans on an annualized basis compared to $654,000, or .13% of average loans for the comparable period in 2003. This can be attributed to an increase in commercial business loan charge offs of $339,000. As of September 30, 2004 allowance for loan losses as a percentage of non-performing loans and loans receivable was 172.85% and .98%, respectively, compared to 208.26% and .95%, respectively at December 31, 2003.

Total deposits were $587.5 million at September 30, 2004 an increase of $8.2 million, or 1.4% from December 31, 2003. Excluding a $2.2 million decrease in volatile short term public funds, retail deposits grew $10.4 million with certificates of deposits shrinking $7.2 million and core savings, checking and DMMA accounts growing by $17.6 million, in keeping with our strategic objective of growing core deposits. Total borrowings increased $1.2 million to $138.3 million at September 30, 2004 from $137.1 million at December 31, 2003.

Stockholders' equity decreased $7.8 million, or 8.0%, from $97.5 million at December 31, 2003, to $89.7 million at September 30, 2004. The decrease was due primarily to the repurchase of 535,852 shares of common stock for $12.6 million and dividend payments of $1.8 million. These decreases were partially offset by net income of $5.5 million, Employee Stock Ownership Plan (ESOP) shares earned of $560,000, Recognition and Retention Plan (RRP) shares earned of $450,000 and stock options exercised for $355,000. Also, the market value of securities available for sale compared to their book value decreased $256,000 from a gain of $234,000 at December 31, 2003 to a loss of $22,000 at September 30, 2004.

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

Net income for the quarter ended September 30, 2004 was $1.7 million, or $.38 for basic and $.37 for diluted earnings per share. This compared to net income for the comparable period in 2003 of $2.0 million, or $.41 for basic and $.39 for diluted earnings per share. Annualized return on average assets was .84% and return on average equity was 7.62% for the third quarter of 2004, compared to ..98% and 8.27%, respectively, for the same period last year.

Interest income decreased $553,000, or 4.8%, from $11.5 million for the three months ended September 30, 2003 to $11.0 million for the three months ended September 30, 2004 due to a decrease in the yield on average interest-earning assets from 6.24% for the 2003 period to 5.83% for the 2004 period. The decrease in average yield was partially offset by an increase in average interest-earning assets from $739.0 million during the three months ended September 30, 2003 to $753.4 million during the third quarter in 2004. Interest expense decreased $328,000 or 7.0%, from $4.7 million for the three months ended September, 2003, to $4.4 million for the three months ended September 30, 2004 due to a decrease in the average cost of interest-bearing liabilities from 2.71% for the 2003 period to 2.44% for the 2004 period. The decrease in average cost was partially offset by an increase in the average interest-bearing liabilities from $694.2 million during the three months ended September 30, 2003 to $715.0 million during the comparable period in 2004. As a result, net interest income decreased $225,000 from $6.8 million for the three months ended September 30, 2003, to $6.6 million for the three months ended September 30, 2004.

The net interest margin decreased from 3.70% for the three-month period ended September 30, 2003, to 3.51% 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. In addition, since September 30 of 2003, MutualFirst has repurchased over $12 million of its stock to manage capital. An additional impact of these repurchases is to reduce net earning assets and therefore lower net interest income, while at the same time increasing earnings per share due to the decreased number of shares outstanding.

The provision for loan losses for the third quarter of 2004 was $350,000 compared to $325,000 for last year's comparable period. Non-performing loans to total loans at September 30, 2004 were .57% compared to .42% at September 30, 2003. Non-performing assets to total assets were .61% at September 30, 2004 compared to .52% at September 30, 2003. The reason for the increased loan loss provision was due to an increase in charge offs (mentioned above) and an increase in classified loans when comparing the current quarter to the year ago quarter. Management believes loan loss reserves to be adequate.

Non-interest income increased $436,000 or 38.4%, to $1.6 million for the three months ended September 30, 2004 compared to $1.1 million for the same period in 2003. The increase was primarily due to an increase in the gain on sale of loans of $201,000 in the third quarter of 2004 compared to the third quarter of 2003 which included a $320,000 valuation impairment allowance to mortgage servicing rights. Also, service fee income and commissions were up $109,000 when comparing the current quarter to the year ago quarter due to an increased number of checking accounts outstanding and increased sales of investment products. In September the Bank began offering overdraft privilege to its checking account customers and it is anticipated that this service will increase service fee income over the next several quarters. In addition, equity in gains of limited partnerships was up $107,000 when compared to the year ago quarter due to higher occupancy rates and lower or deferred operating expenses. These limited partnerships invest in low income housing projects which provide tax credits and a limited amount of cash flow to their equity owners. Management believes future GAAP earnings on these projects will be negligible.

Non-interest expense increased $441,000 or 8.8% to $5.5 million for the three months ended September 30, 2004 compared to $5.0 million for the same period in 2003. Salaries and employee benefits were up $180,000, primarily due to a $73,000 increase in health insurance premiums and a $47,000 reduction of deferred compensation related to lower mortgage originations when comparing the two quarters. Other expenses were up due to a new branch opening, increased software maintenance costs, increased operational charge offs and increased data processing costs.

Income tax expense was little changed for the three months ended September 30, 2004 compared to the same period in 2003 due to lower taxable income being offset by a higher effective tax rate due to less tax credits.

Comparison of the Operating Results for the Nine-Months Ended September 30, 2004 and 2003.

Net income for the nine months ended September 30, 2004 was $5.5 million or $1.17 for basic and $1.13 for diluted earnings per share. This compared to net income for the comparable period in 2003 of $6.4 million or $1.28 for basic and $1.24 for diluted earnings per share. Annualized return on assets was .90% and return on equity was 7.74% for the first nine months of 2004 compared to 1.09% and 9.03% respectively, for the same period of last year.

Interest income decreased $1.8 million, or 5.2% from $35.1 million for the nine months ended September 30, 2003 to $33.2 million for the nine months ended September 30, 2004 due to a decrease in the yield on average interest-earning assets from 6.45% for the 2003 period to 5.90% for the 2004 period. The decrease in average yield was partially offset by an increase in average interest-earning assets from $724.9 million during the nine months ended September 30, 2003 to $751.1 million during the same nine months in 2004. Interest expense decreased $1.5 million, or 10.6% from $14.5 million for the nine months ended September 30, 2003 to $12.9 million for the same period in 2004 due to a decrease in the average cost of interest-bearing liabilities from 2.84% for the 2003 period to 2.44% for the 2004 period. The decrease in average cost was partially offset by an increase in the average interest-bearing liabilities from $680.4 million during the nine months ended September 30, 2003 to $708.3 million during the comparable period in 2004. As a result, net interest income decreased $294,000 for the nine months ended September 30, 2004 compared to the nine months ended September 30, 2003.

The net interest margin decreased from 3.78% for the nine-month period ended September 30, 2003, to 3.60% 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. In addition, since September 30 of 2003, MutualFirst has repurchased over $12 million of its stock to manage capital. An additional impact of these repurchases is to reduce net earning assets and therefore lower net interest income, while at the same time increasing earnings per share due to the decreased number of shares outstanding.

Non-interest income for the nine months ended September 30, 2004 increased $48,000 from $4.5 million for the nine months ended September 30, 2003 to $4.6 million. An increase in the equity in gains of limited partnerships (see discussion above) of $353,000 was partially offset by a lower increase in cash surrender value of life insurance of $290,000 in the 2004 period compared to the comparable period in 2003 which included life insurance proceeds following the death of a former director.

For the nine-month period non-interest expense was up $836,000 or 5.5% when comparing the first nine months of 2004 to the same period in 2003. The majority of this increase was due to a $473,000 increase in salaries and employee benefits which included a $189,000 increase in health insurance premium costs, a reduction of deferred compensation relating to lower mortgage originations of $153,000, and a $113,000 increase in the cost of the RRP plan. Other expenses were up due to a new branch opening with an ATM, increased software maintenance costs, increased operational charge offs due to several robberies and increased data processing costs.

For the nine-month period ended September 30, 2004, income tax expense decreased $179,000 compared to the same period in 2003. The decrease was due primarily to decreased taxable income. Because of lower tax credits the effective tax rate increased from 27.3% to 29.0% when comparing the two nine month periods ended September 30, 2003 and 2004, respectively.

Recent Development

On November 9, 2004, the Company announced that it had entered into a separation agreement with Steven L. Banks as Director and Senior Vice President of the Company and Director and Senior Vice President and Chief Operating Officer of Grant County for Mutual Federal Savings Bank. The effective date is November 12, 2004. Mr. Banks had served in those capacities since the merger of Marion Capital Holdings with MutualFirst Financial, Inc. in December, 2000.

In accordance with the terms of the agreement, Mr. Banks will receive a payment for the remaining term of his Employment Agreement and the required payments under the Supplemental Retirement Agreements entered into prior to the merger in 2000. The total of these payments will reduce fourth quarter after-tax earnings by approximately $1.7 million or $.36 on a per share basis.

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, 2004, Mutual Federal had liquid assets of $54.1 million and a liquidity ratio of 7.56 %.

ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk

Presented below as of September 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.

September 30, 2004
Net Portfolio Value

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

The analysis at September 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.

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.