Mutualfirst Financial (MFSF) 10-Q 2002 Q1 Quarterly report

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 EndedMarch 31, 2002or
[   ]	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 StreetMuncie, 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[   ]

The number of shares of the Registrant's common stock, without par value, outstanding as of March 31, 2002 was 6,325,078.





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FORM 10 - QMutualFirst Financial, Inc.
INDEX

			Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets at
		March 31, 2002 and December 31, 2001	1
	Consolidated Condensed Statement of Income for the
		three and six months ended March 31, 2002 and March 31, 2001	2
	Consolidated Condensed Statement of Stockholders' Equity
		for the three months ended March 31, 2002	3
	Consolidated Condensed Statement of Cash Flows for the
		three months ended March 31, 2002 and March 31, 2001	4
	Notes to Unaudited Consolidated Condensed Financial Statements		5
Item 2.	Management's Discussion and Analysis of Financial Condition		7
		and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		9
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		10
Item 2.	Changes in Securities and Use of Proceeds		10
Item 3.	Defaults Upon Senior Securities		10
Item 4.	Submission of Matters to a Vote of Security Holders		10
Item 5.	Other Information		10
Item 6.	Exhibits and Reports on Form 8-K		10
Signature Page			11

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PART 1
FINANCIAL INFORMATION
ITEM 1. Financial Statements

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
Consolidated Condensed Balance Sheets

			March 31,	December 31,
			2002	2001
			(Unaudited)
Assets
Cash			$19,325,255	$24,140,688
Interest-bearing deposits			1,945,989	6,416,985
	Cash and cash equivalents		21,271,244	30,557,673
Investment securities available for sale			29,005,112	31,580,095
Loans held for sale			0	11,559,158
Loans			661,441,687	642,084,418
	Allowance for loan losses		(5,844,933)	(5,449,292)
Net loans			655,596,754	636,635,126
Premises and equipment			8,586,329	8,674,152
Federal Home Loan Bank of Indianapolis stock, at cost			6,993,400	6,993,400
Investment in limited partnerships			5,610,270	5,677,060
Cash surrender value of life insurance			24,531,091	24,231,091
Foreclosed real estate			1,075,256	1,045,765
Interest receivable			3,629,601	3,696,560
Core deposit intangibles and goodwill			1,007,352	1,052,491
Deferred income tax benefit			4,612,149	4,553,975
Other assets			3,716,042	3,071,327
		Total assets	$765,634,600	$769,327,873
Liabilities
Deposits
	Non-interest-bearing		$26,110,741	$23,433,570
	Interest bearing		516,371,159	515,444,601
		Total deposits	542,481,900	538,878,171
Federal Home Loan Bank advances			102,781,099	107,484,586
Other borrowings			3,243,604	3,258,677
Advances by borrowers for taxes and insurance			2,515,503	1,463,384
Interest payable			1,893,148	1,359,940
Other liabilities			7,053,656	7,138,937
Total liabilities			659,968,910	659,583,695
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 --- 6,325,078 and 6,693,841 shares	63,250	66,938
	Additional paid-in capital		53,977,415	59,575,884
	Retained earnings		56,524,414	55,195,694
	Accumulated other comprehensive income		268,748	356,009
	Unearned employee stock ownership plan (ESOP) shares		(3,734,486)	(3,813,946)
	Unearned recognition and retention plan (RRP) shares		(1,433,651)	(1,636,401)
		Total stockholders' equity	105,665,690	109,744,178
		Total liabilities and stockholders' equity	$765,634,600	$769,327,873

See notes to consolidated condensed financial statements.


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

			Three Months Ended March 31
			2002	2001
Interest Income
Loans receivable, including fees			$12,214,887	$13,213,697
Investment securities:
	Mortgage-backed securities		154,116	212,872
	Federal Home Loan Bank stock		103,464	137,952
	Other investments		216,590	466,270
Deposits with financial institutions			65,895	26,349
		Total interest income	12,754,952	14,057,140
Interest Expense
Passbook savings			159,552	238,598
Certificates of deposit			4,226,990	5,447,330
Daily Money Market accounts			209,710	381,686
Demand and NOW accounts			119,937	228,200
Federal Home Loan Bank advances			1,384,264	1,438,090
Other interest expense			24,710	0
		Total interest expense	6,125,163	7,733,904
Net Interest Income			6,629,789	6,323,236
	Provision for losses on loans		587,483	189,250
Net Interest Income After Provision for Loan Losses			6,042,306	6,133,986
Other Income
Service fee income			606,672	572,895
Equity in losses of limited partnerships			(37,390)	(45,391)
Commissions			189,124	182,522
Net gains on loan sales			0	123,160
Increase in cash surrender value of life insurance			300,000	286,500
Other income			113,299	114,330
		Total other income	1,171,705	1,234,016
Other Expenses
Salaries and employee benefits			3,008,935	3,196,233
Net occupancy expenses			241,986	230,739
Equipment expenses			197,746	232,215
Data processing fees			193,748	204,214
Automated teller machine			85,456	118,135
Deposit insurance expense			24,167	26,091
Advertising and promotion			93,492	159,491
Goodwill amortization			45,140	51,775
Other expenses			769,611	889,061
		Total other expenses	4,660,281	5,107,954
Income Before Income Tax			2,553,730	2,260,048
	Income tax expense		669,600	521,000
Net Income			$1,884,130	$1,739,048
	Basic earnings per share		$0.32	$0.23
	Diluted earnings per share		$0.32	$0.22
	Dividends per share		$0.09	$0.08

See notes to consolidated condensed financial statements.


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Mutual First Financial
Consolidated Statements of Cash Flows

					Three Months Ended March 31,
					2002	2001
Operating Activities
	Net income				$1,884,130	$1,739,048
	Adjustments to reconcile net income to net cash provided by operating activities
		Provision for loan losses			587,483	189,250
		Net loss on disposal of premise and equipment			-	143,811
		Net loss on sale of real estate owned			45,102
		Securities amortization (accretion), net			5,425	(10,227)
		ESOP shares earned			129,774	114,816
		RRP shares earned			202,750	773,015
		Equity in losses of limited partnerships			37,390	45,391
		Amortization of net loan origination costs			568,599	478,227
		Amortization of core deposit intangibles and goodwill			45,139	51,774
		Depreciation and amortization			204,633	295,748
		Deferred income tax			-	(20,233)
		Loans originated for sale			-	(11,340,727)
		Proceeds from sales on loans held for sale			-	6,735,306
		Gains on sales of loans held for sale			-	(58,360)
		Change in
			Interest receivable		66,959	536,974
			Other assets		(644,715)	(663,899)
			Interest payable		533,208	837,173
			Other liabilities		(53,161)	(1,339,411)
			Increase in cash surrender value of life insurance		(300,000)	(286,500)
				Net cash provided by operating activities	3,312,716	(1,778,824)
Investing Activities
	Purchases of securities available for sale				(3,429,656)	(684,437)
	Proceeds from maturities and paydowns of securities available for sale				5,853,778	1,676,633
	Proceeds from maturities and paydowns of securities held to maturity				-	4,008,766
	Net change in loans				(8,982,400)	(1,884,588)
	Purchases of premises and equipment				(116,810)	(158,351)
	Proceeds from real estate owned sales				374,800	-
	Distribution from limited partnership				29,400	154,136
	Other investing activities				(25,545)	(86,479)
				Net cash used by investing activities	(6,296,433)	3,025,680
Financing Activities
	Net change in
		Noninterest-bearing, interest bearing demand and savings deposits			2,314,064	3,782,711
		Certificates of deposits			1,289,665	20,844,796
	Repayment of note payable				(30,679)	15,769
	Proceeds from FHLB advances				3,280,000	79,017,667
	Repayment of FHLB advances				(8,000,000)	(95,200,000)
	Net change in advances by borrowers for taxes and insurance				1,052,119	1,086,779
	Stock repurchased				(5,657,471)	(12,236,578)
	Proceeds from exercise of stock options				5,000	46,050
	Dividends Paid				(555,410)	(571,242)
	Net cash provided by financing activities				(6,302,712)	(3,214,048)
Net Change in Cash and Cash Equivalents					(9,286,429)	(1,967,192)
Cash and Cash Equivalents, Beginning of Year					30,557,673	21,046,057
Cash and Cash Equivalents, End of Period					$21,271,244	$19,078,865
Additional Cash Flows Information
	Interest paid				$ 5,591,955	$ 5,296,813
	Income tax paid				880,000	200,000
	Transfers from loans to foreclosed real estate				423,848	104,647
	Loans held for sale transferred to loans				11,559,158	-
	Mortgage servicing rights capitalized				-	64,800

See notes to consolidated condensed financial statements.








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MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
Consolidated Condensed Statements of Stockholders' Equity
For the Three Months Ended March 31, 2002
(Unaudited)

			Common Stock			Comprehensive Income	Retained Earnings	Accumulated Other Comprehensive Income	Unearned ESOP shares	Unearned RRP shares	Total
			Shares Outstanding	Amount	Additional paid-incapital
Balances, December 31, 2001			6,693,841	$66,938	$59,575,884		$55,195,694	$356,009	($3,813,946)	($1,636,401)	$109,744,178
Comprehensive income
	Net income for the period					$1,884,130	$1,884,130				1,884,130
	Other comprehensive income, net of tax
		Unrealized gains on securities				(87,261)		(87,261)			(87,261)
Comprehensive income						$1,796,869
ESOP shares earned					50,314				79,460		129,774
Cash dividends ($.09 per share)							(555,410)				(555,410)
RRP shares earned										202,750	202,750
Stock repurchased			(369,694)	(3,697)	(5,653,774)						(5,657,471)
Stock options exercised			931	9	4,991						5,000
Balances, March 31, 2002			6,325,078	$63,250	$53,977,415		$56,524,414	$268,748	($3,734,486)	($1,433,651)	$105,665,690

See notes to consolidated condensed financial statements.














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MutualFirst Financial, Inc. and SubsidiariesNotes to Unaudited Consolidated Condensed Financial Statements

NOTE 1: Basis of Presentation

The consolidated financial statements include the accounts ofMutualFirst 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. A summary of significant accounting policies is set forth in Note 1 of the Notes to Consolidated Financial Statements included in the December 31, 2001 Annual Report to Shareholders. All significant inter-company accounts and transactions have been eliminated in consolidation.

The interim consolidated financial statements have been prepared in accordance with instructions to Form 10-Q, and therefore do not include all information and footnotes required by generally accepted accounting principles necessary for complete financial statements.

The interim consolidated financial statements at March 31, 2002, and for the three month period ended March 31, 2002 have not been audited by independent accountants, but in the opinion of management, reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for such periods.

The consolidated condensed balance sheet of the Company as of December 31, 2001 has been derived from the audited consolidated balance sheet of the Company as of that date.

NOTE 2: Benefit Plans

On December 1, 2000, the stockholders of the Company approved a Stock Option Plan and a Recognition and Retention Plan (RRP). These plans allow for the purchase in the open market or through the issuance of authorized and unissued shares of up to 581,961 shares of common stock for the Stock Option Plan and 232,784 shares of common stock for the RRP. Under the Stock Option Plan, stock option rights covering 581,961 shares of stock may be granted to officers, key employees and directors of the Company and its subsidiaries. Options for 507,000 of such shares were granted effective January 12, 2001. The options have an option price per share equal to the market value at 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 stock may be awarded to the directors and key employees of the Company and its subsidiaries. Grants of 209,000 of such shares have been awarded effective January 12, 2001. Beginning March 20, 2001, 122,000 of these shares vest at a rate of 20% per year and 77,500 vest at a rate of 33.3% per year and 9,500 shares were fully vested as of March 20, 2002. Expense under the RRP plan was $203,000 for the three-month period ended March 31, 2002.









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Note 3 -- Earnings per share

Earnings per share were computed as follows:

			Three Months Ended March 31,
			2002			2001
			Income	Weighted- Average Shares	Per-Share Amount	Income	Weighted- Average Shares	Per-Share Amount
			(000's)			(000's)
Basic Earnings Per Share
	Income available to common shareholders		$1,884	5,848,967	$0.32	$1,739	7,721,715	$0.23
Effect of Dilutive securities
	Stock options and RRP grants			66,723			11,840
Diluted Earnings Per Share
	Income available to common stockholders
		and assumed conversions	$1,884	5,915,690	$0.32	$1,739	7,733,555	$0.22

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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 consumer goods. Mutual Federal's deposit accounts are insured up to applicable limits by the Savings Association Insurance Fund (SAIF) of the FDIC.

Mutual Federal currently owns two subsidiaries, First MFSB Corporation and Third MFSB Corporation. The assets of First MFSB Corporation consist of an investment in Family Financial Life Insurance Company. Family Financial is an Indiana stock insurance company that primarily engages in retail sales of mortgage and credit life insurance products in connection with loans originated by it's shareholder financial institutions. Third MFSB, which does business as Mutual Financial Services, offers tax deferred annuities, 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.

Forward Looking Statements

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


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Financial Condition

Assets totaled $765.6 million at March 31, 2002, a decrease of $3.7 million from $769.3 million at December 31, 2001. The primary reason for the decrease was the use of cash and cash equivalents for stock repurchases of $5.7 million during the quarter. Net loans, before allowance for loan losses, increased $19.4 million, which included $11.6 million transferred from the loans held for sale category early in the quarter to maintain loan growth objectives. Excluding the transferred loans, the real estate mortgage loan portfolio increased $4.1 million during the period. Consumer loans increased $1.6 million and commercial business loans increased $2.1 million.

Allowance for loan losses increased $396,000, from $5.4 million at December 31, 2001, to $5.8 million at March 31, 2002. This increase was primarily due to an increase in classified commercial and one- to four- family real estate loans. Net charge offs for the quarter were $193,000, or .12% of average loans on an annualized basis.

Total deposits were $542.5 million at March 31, 2002, an increase of $3.6 million, or .7% from December 31, 2001. Retail deposits increased $10.6 million during the quarter, with public funds down $7.0 million. Total borrowings decreased $4.7 million to $106.0 million at March 31, 2002, from $110.7 million at December 31, 2001.

Stockholders' equity decreased $4.0 million from $109.7 million at December 31, 2001 to $105.7 million at March 31, 2002. The decrease was due primarily to the repurchase of 369,694 shares for $5.7 million and dividend payments of $555,000. These decreases were partially offset by net income of $1.9 million, Employee Stock Ownership Plan (ESOP) shares earned of $130,000, Recognition and Retention Plan (RRP) shares earned of $203,000, and proceeds from the exercise of stock options of $5,000. Also, unrealized gain on securities available for sale decreased $87,000.

Comparison of the Operating Results Ended March 31, 2002 and 2001

Net income for the quarter ended March 31, 2002 was $1.9 million, or $.32 for both basic and diluted earnings per share. This compared to net income for the comparable period in 2001 of $1.7 million, or $.23 for basic and $.22 for diluted earnings per share. Annualized return on average assets was .98% and return on average equity was 7.04% for the first quarter of 2002, compared to .91% and 5.51%, respectively, for the same period last year.

Interest income decreased $1.3 million, or 9.3%, from $14.1 million for the three months ended March 31, 2001 to $12.8 million for the three months ended March 31, 2002. Interest expense decreased $1.6 million, or 20.8%, from $7.7 million for the three months ended March 31, 2001, to $6.1 million for the three months ended March 31, 2002. As a result, net interest income for the three-month period ended March 31, 2002, increased $307,000, or 4.9%, compared to the same period in 2001. The average interest rate spread increased from 3.06% for the three-month period ended March 31, 2001, to 3.47% for the comparable period in 2002 as yields on interest earning assets decreased at a slower rate than the decrease in the cost of interest bearing liabilities.

The provision for loan losses for the first quarter of 2002 was $587,000 compared to $189,000 for the same period in 2001. Non-performing loans to total loans at March 31, 2002, were 1.03% compared to .56% at March 31, 2001. Non-performing assets to total assets were 1.07% at March 31, 2002, compared to .64% at March 31, 2001. The increase was due to higher non-performing 1-4 family and commercial mortgage


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loan balances brought about by the continued slow economy. The non-performing commercial properties are made up primarily of two nursing home loans totaling $1.8 million and three other loans totaling $972,000. Specific reserves of $290,000 have been established on these loans. Negotiations are in progress with the owners and possible buyers to satisfy these obligations.

Non-interest income, excluding net gain on loan sales, increased $61,000, or 5.5%, to $1.2 million for the three-months ended March 31, 2002 compared to $1.1 million for the same period in 2001. During the first quarter of 2001, there was a gain of $123,000 on the sale of fixed rate residential mortgage loans. There were no loan sales in the first quarter of 2002.

Non-interest expense decreased $448,000, or 8.8%, to $4.7 million for the three-months ended March 31, 2002, compared to $5.1 million in 2001. Salaries and employee benefits were $3.0 million for the three-months ended March 31, 2002 compared to $3.2 million for the 2001 period, a decrease of $187,000, or 5.9% due to a reduction in RRP costs. Other expenses decreased $260,000, or 13.6%, for the three-month period ended March 31, 2002 compared to the same period in 2001 due primarily to efficiencies realized since the merger with Marian Capital in December of 2000.

Income tax expense increased $149,000 for the three-months ended March 31, 2002, compared to the same period in 2001. The increase resulted from increased 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, 2002, Mutual Federal had liquid assets of $49.9 million and a liquidity ratio of 7.65%.

ITEM 3 - Quantitative and Quantitative Disclosures about Market Risk

Presented below as of March 31, 2002 and 2001 is an analysis of Mutual Federal's interest rate risk as measured by changes in Mutual Federal's net portfolio value ("NPV") assuming an instantaneous and sustained parallel shifts in the yield curve, in 100 basis point increments, up and down 300 basis points.

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	117,960	14,102	14%	14.51%	+98 bp

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March 31, 2001 Net Portfolio Value
Changes In Rates	$ Amount	$ Change	% Change	NPV as % of PV of Assets
				NPV Ratio	Change
+300 bp	84,407	-30,101	-26%	11.65%	-309 bp
+200 bp	94,718	-19,791	-17%	12.77%	-197 bp
+100 bp	105,183	-9,325	-8%	13.86%	-88 bp
0 bp	114,509			14.74%
-100 bp	120,088	5,579	5%	15.17%	+43 bp
-200 bp	123,174	8,665	8%	15.30%	+56 bp
-300 bp	130,086	15,577	14%	15.83%	+109 bp

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


PART IIOTHER 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 to Security Holders
	None.
Item 5.	Other Information.
	None.
Item 6.	Exhibits and Reports on form 8-K.
	(a)	No reports on form 8-K were filed during the quarter ended March 31, 2002.

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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, 2002	By:	/s/ R. Donn RobertsR. Donn Roberts President and Chief Executive Officer
Date:	May 14, 2002	By:	/s/ Timothy J. McArdleTimothy J. McArdle Senior Vice President and Treasurer

11End.