Mutualfirst Financial (MFSF) 10-Q 2005 Q2 Quarterly report

UNITED STATES
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 June 30, 2005 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 June 30, 2005 was 4,608,013.




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FORM 10 - Q
MutualFirst Financial, Inc.

INDEX

			Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets		1
	Consolidated Condensed Statements of Income		2
	Consolidated Condensed Statement of Stockholders' Equity		3
	Consolidated Condensed Statements of Cash Flows		4
	Notes to Unaudited Consolidated Condensed Financial Statements		6
Item 2.	Management's Discussion and Analysis of
		Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		17
Item 4.	Controls and Procedures		18
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		19
Item 2.	Unregistered Sales of Equity Changes in Securities and Use of Proceeds		19
Item 3.	Defaults Upon Senior Securities		19
Item 4.	Submission of Matters to a Vote of Security Holders		19
Item 5.	Other Information		20
Item 6.	Exhibits		20
Signature Page			21
Exhibits

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PART 1       FINANCIAL INFORMATION
ITEM 1.       Financial Statements

MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
Consolidated Condensed Balance Sheets

			June 30, 2005	December 31, 2004
			(Unaudited)
Assets
Cash			$15,860,784	$19,275,332
Interest-bearing deposits			1,011,492	468,044
Cash and cash equivalents			16,872,276	19,743,376
Investment securities available for sale			41,890,564	39,408,978
Loans held for sale			0	2,913,150
Loans			737,706,669	719,888,598
Allowance for loan losses			(6,909,069)	(6,866,910)
Net loans			730,797,600	713,021,688
Premises and equipment			13,585,066	12,191,117
Federal Home Loan Bank of Indianapolis stock, at cost			8,269,800	7,957,700
Investment in limited partnerships			4,941,791	5,025,378
Cash surrender value of life insurance			27,605,357	27,090,357
Foreclosed real estate			469,398	340,113
Interest receivable			3,366,761	3,038,557
Core deposit intangibles and goodwill			887,155	894,016
Deferred income tax benefit			4,166,566	4,003,199
Other assets			5,270,504	3,759,628
Total assets			$858,122,838	$839,387,257
Liabilities
Deposits
	Non-interest-bearing		$40,787,630	$39,999,427
	Interest bearing		565,556,930	560,407,685
		Total deposits	606,344,560	600,407,112
Federal Home Loan Bank advances			151,575,194	139,426,777
Other borrowings			2,145,965	2,145,432
Advances by borrowers for taxes and insurance			1,789,544	1,578,522
Interest payable			909,767	1,025,017
Other liabilities			7,748,255	6,944,254
Total liabilities			770,513,285	751,527,114
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 ---4,608,013 and 4,708,318 shares	46,091	47,084
	Additional paid-in capital		33,947,294	34,385,254
	Retained earnings		56,867,050	56,826,053
	Accumulated other comprehensive income		(228,450)	(88,646)
	Unearned employee stock ownership plan (ESOP) shares		(2,701,506)	(2,860,426)
	Unearned recognition and retention plan (RRP) shares		(320,926)	(449,176)
		Total stockholders' equity	87,609,553	87,860,143
		Total liabilities and stockholders' equity	$858,122,838	$839,387,257

See notes to consolidated condensed financial statements.1Next Page


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

			Three Months Ended June 30		Six Months Ended June 30
			2005	2004	2005	2004
Interest Income
Loans receivable, including fees			$11,014,590	$10,660,029	$21,801,273	$21,448,737
	Investment securities:
		Mortgage-backed securities	128,087	116,349	258,397	238,505
		Federal Home Loan Bank stock	81,043	78,038	165,842	169,315
		Other investments	275,549	189,220	504,032	370,780
Deposits with financial institutions			7,195	4,327	13,765	17,280
Total interest income			11,506,464	11,047,963	22,743,309	22,244,617
Interest Expense
Passbook savings			67,942	39,493	107,689	76,979
Certificates of deposit			3,188,931	2,754,406	6,208,836	5,599,232
Daily Money Market accounts			192,651	138,362	358,158	258,453
Demand and NOW accounts			40,120	35,343	73,437	68,836
Federal Home Loan Bank advances			1,309,574	1,227,675	2,598,021	2,542,773
Other interest expense			15,606	15,606	31,212	31,212
Total interest expense			4,814,824	4,210,885	9,377,353	8,577,485
Net Interest Income			6,691,640	6,837,078	13,365,956	13,667,132
Provision for losses on loans			443,750	530,000	887,500	756,500
Net Interest Income After Provision for Loan Losses			6,247,890	6,307,078	12,478,456	12,910,632
Other Income
Service fee income			990,070	743,490	1,875,842	1,445,251
Net realized loss on sale of available-for-sale securities			0	0	(762)	0
Equity in gains (losses) of limited partnerships			(9,369)	18,831	(26,239)	21,661
Commissions			341,190	154,281	554,779	296,990
Net gains on loan sales and servicing			116,733	216,774	265,901	611,969
Increase in cash surrender value of life insurance			250,000	247,000	515,000	505,000
Other income			29,210	87,571	69,679	127,533
Total other income			1,717,834	1,467,947	3,254,200	3,008,404
Other Expenses
Salaries and employee benefits			3,379,867	3,329,553	6,785,904	6,769,296
Net occupancy expenses			321,806	258,946	670,590	551,684
Equipment expenses			307,558	266,927	620,688	528,274
Data processing fees			201,607	149,665	395,728	346,727
Automated teller machine			160,611	158,084	320,915	301,605
Deposit insurance expense			20,995	22,030	41,835	44,041
Advertising and promotion			193,527	146,940	332,283	241,945
Other expenses			1,048,299	866,068	2,015,317	1,756,172
Total other expenses			5,634,270	5,198,213	11,183,260	10,539,745
Income Before Income Tax			2,331,454	2,576,812	4,549,396	5,379,291
Income tax expense			642,250	763,100	1,252,250	1,597,650
Net Income			$1,689,204	$1,813,712	$3,297,146	$3,781,641
Basic earnings per share			$0.39	$0.38	$0.76	$0.79
Diluted earnings per share			$0.38	$0.37	$0.74	$0.77
Dividends per share			$0.13	$0.12	$0.26	$0.23

See notes to consolidated condensed financial statements.
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MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
Consolidated Condensed Statement of Stockholders' Equity
For the Six Months Ended June 30, 2005
(Unaudited)

		Common Stock		Additional paid-in  capital	Compre- hensive Income	Retained Earnings	Accumulated Other Comprehensive Income	Unearned ESOP shares	Unearned RRP shares	Total
		Shares Outstanding	Amount
Balances,  December  31, 2004		4,708,318	$47,084	$34,385,254		$56,826,053	($88,646)	($2,860,426)	($449,176)	$87,860,143
Comprehensive income
Net income for the period					$3,297,146	$3,297,146				3,297,146
Other comprehensive income, net of tax
	Net unrealized losses on securities				(139,804)		(139,804)			(139,804)
Comprehensive income					$3,157,342
ESOP shares earned				211,513				158,920		370,433
Cash dividends ($.26 per share)						(1,217,764)				(1,217,764)
RRP shares earned									128,250	128,250
Stock repurchased and retired		(140,605)	(1,396)	(1,233,420)		(2,038,385)				(3,273,201)
Stock options exercised		40,300	403	583,947						584,350
Balances,  June 30, 2005		4,608,013	$46,091	$33,947,294		$56,867,050	($228,450)	($2,701,506)	($320,926)	$87,609,553

See notes to consolidated condensed financial statements.


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

					Six Months Ended June 30
					2005	2004
Operating Activities
	Net income				$3,297,146	$3,781,641
	Adjustments to reconcile net income to net
		cash provided by operating activities
		Provision for loan losses			887,500	756,500
		Securities gains			762	2,817
		Net loss on disposal of premise and equipment			-	4,068
		Net loss on sale of real estate owned			121,659	178,048
		Securities amortization (accretion), net			82,748	141,060
		ESOP shares earned			370,433	378,776
		RRP shares earned			128,250	300,250
		Equity in (gains) and losses of limited partnerships			26,239	(21,661)
		Amortization of net loan origination costs			836,634	766,012
		Amortization of core deposit intangibles and goodwill			6,861	6,861
		Depreciation and amortization			604,129	530,087
		Deferred income tax			(70,165)	-
		Loans originated for sale			(9,131,315)	(14,144,370)
		Proceeds from sales on loans held for sale			12,247,743	29,797,725
		Gains on sales of loans held for sale			(203,278)	(479,084)
		Change in
			Interest receivable		(328,204)	64,789
			Other assets		(1,503,863)	(193,619)
			Interest payable		(115,250)	(14,755)
			Other liabilities		835,213	88,616
			Net change in cash surrender value of life insurance		(515,000)	(505,000)
				Net cash provided  by operating activities	7,578,242	21,438,761
Investing Activities
	Purchases of securities available for sale				(8,412,749)	(12,752,333)
	Proceeds from maturities and paydowns of securities available for sale				4,459,637	5,801,054
	Proceeds from sales of securities available for sale				1,155,010	3,319,382
	Net change in loans				(19,882,294)	(10,751,679)
	Purchases of premises and equipment				(1,998,078)	(2,281,650)
	Proceeds from real estate owned sales				131,304	441,179
	Purchase of FHLB of Indianapolis stock				(312,100)	(511,400)
	Distribution from limited partnership				50,335	50,335
			Net cash used by investing activities		(24,808,935)	(16,685,112)
Financing Activities
	Net change in
		Noninterest-bearing, interest bearing demand and savings deposits			(10,539,160)	16,844,535
		Certificates of deposits			16,476,608	(25,572,050)
		Repayment of note payable			(30,679)	(30,679)
		Proceeds from FHLB advances			185,800,000	98,200,000
		Repayment of FHLB advances			(173,651,583)	(90,054,919)
		Net change in advances by borrowers for taxes and insurance			211,022	445,946
		Stock repurchased			(3,273,201)	(8,605,902)
		Proceeds from exercise of stock options			584,350	314,288
		Cash Dividends			(1,217,764)	(1,179,482)
			Net cash provided (used)  by financing activities		14,359,593	(9,638,263)
Net Change in Cash and Cash Equivalents					(2,871,100)	(4,884,614)
Cash and Cash Equivalents, Beginning of Year					19,743,376	23,067,786
Cash and Cash Equivalents, End of Period					$16,872,276	$18,183,172

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Additional Cash Flows Information
	Interest paid	$9,492,603	$8,577,485
	Income tax paid	1,880,366	1,472,000
	Transfers from loans to foreclosed real estate	382,248	325,565
	Loans transferred to loans held for sale		15,293,086
	Mortgage servicing rights capitalized	121,622	296,148

See notes to consolidated condensed financial statements.

























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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 2004 filed with the Securities and Exchange Commission.

The interim consolidated financial statements at June 30, 2005 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, 2004 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, 2004 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)





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	Three Months Ended		Six Months Ended
	June 30, 2005	June 30, 2004	June 30, 2005	June 30, 2004
Net income, as reported	$1,689	$1,814	$3,297	$3,782
Less: Total stock-based employee
compensation cost determined under
the fair value based method, net of
income taxes	($26)	($26)	($52)	($52)
Pro forma net income	$1,663	$1,788	$3,245	$3,730
Earnings per share:
Basic - as reported	$0.39	$0.38	$0.76	$0.79
Basic - proforma	$0.38	$0.38	$0.74	$0.78
Diluted - as reported	$0.38	$0.37	$0.74	$0.77
Diluted - proforma	$0.37	$0.37	$0.72	$0.76

Note 2  -- Earnings per share

Earnings per share were computed as follows: 

(Dollars in thousands except per share data)

			Three Months Ended June 30,
			2005			2004
			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		$1,689	4,352,236	$0.39	$1,814	4,732,176	$0.38
Effect of Dilutive securities
	Stock options and RRP grants			111,878			147,784
Diluted Earnings Per Share
	Income available to common stockholders and assumed
		conversions	$1,689	4,464,114	$0.38	$1,814	4,879,960	$0.37

			Six Months Ended June 30,
			2005			2004
			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		$3,297	4,359,063	$0.76	$3,782	4,764,922	$0.79
Effect of Dilutive securities
	Stock options and RRP grants			123,889			163,935
Diluted Earnings Per Share
	Income available to common stockholders and assumed
		conversions	$3,297	4,482,952	$0.74	$3,782	4,928,857	$0.77

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Note 3  -- Effect of Recent Accounting Pronouncements

In June, 2005 the FASB Board decided not to provide additional guidance on the meaning of other-than-temporary impairment, but directed the FASB staff to issue a staff position (FSP) which will be retitled FSP 115-1 "The Meaning of Other-Than-Temporary Impariment and Its Application to Certain Investments". The final FSP will supersede EITF Issue No. 03-1, "The Meaning of Other-Than-Tempoarary Impairment and Its Application to Certain Investments," and EITF Topic No. D-44, "Recognition of Other-Than-Temporary Impairment Upon the Planned Sale of a Security Whose Cost Exceeds Fair Value." FSP FAS 115-1 will replace guidance in EITF Issue No. 03-1 on loss recognition with references to existing other-than-temporary impairment guidance, such as FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities". FSP FAS 115-1 will clarify that an investor should recognize an impairment loss no later than when the impairment is deemed other than temporary, even if a decision to sell has not been made.

FSP FAS 115-1 will be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. The Company has consistently followed the loss recognition guidance in SFAS No. 115, so the adoption of FSP FAS 115-1 will not have any significant impact on the Company's financial condition or results of operation.





















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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 nineteen 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 following should be read in conjunction with the Management's Discussion and Analysis in the Company's December 31, 2004 Annual Report on Form 10-K.

Critical Accounting Policies

The notes to the consolidated financial statements contain a summary of the Company's significant accounting policies presented on pages 62 to 65 of the Annual Report to Shareholders for the year ended December 31, 2004. 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.



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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.



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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 earning 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 45% currently. On the liability side of the balance



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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 36% over this time period. These are ongoing strategies that are dependent on current market conditions and competition.

During the first six months of 2005, in keeping with its strategic objective to reduce interest rate risk exposure, the Company also sold $12.2 million of long term fixed rate loans that had been held for sale, 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 $203,000 in the first six months of this year.

Recent increases in short-term interest rates, as a result of increases in the Federal Funds rate by the Board of Governors of the Federal Reserve System, without a corresponding increase in long-term interest rates will result in an increase in interest expense and a reduction in net interest income in 2005. The effect of the flattening yield curve is to increase our cost of funds at a faster rate than our yield on loans and investments, due to the longer-term nature of our interest earning assets. In 2005, as we increase our investment in business-related loans, which are considered to entail greater risks than one-to-four-family residential loans, in order to help offset the pressure on our net interest margin, our provision for loan losses may increase to reflect this increased risk.

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 six months of 2005, the Company used $3.3 million for this purpose, thereby reducing earning assets from where they otherwise would have been and correspondingly reducing net interest income.

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. The Company is in the process of expanding through the addition of a new branch office that opened in June 2005 located in Syracuse, Indiana in Kosciusko County and the recent purchase of land in Elkhart County, located in northern Indiana, for the purpose of building a new branch office in that vibrant market. The Company is also in the process of developing a new Investment Management and Private Banking Division in order to better service clients with more specialized financial needs. In addition, Mutual Federal Savings Bank, the banking subsidiary of the Company, announced in March of this year that it had entered into a definitive agreement to purchase assets and assume liabilities representing the operations of Fidelity Federal Savings Bank of Marion ("Fidelity"). The intent of all these initiatives is to increase income over the long term. However, on a short term basis, expenses relating to the new branches and new division will have the affect of increasing non interest expense with no immediate offsetting income. The purchase of Fidelity (assumed to close in the third quarter of this year) has been approved by all necessary regulatory bodies and should be accretive to income in the quarter immediately following closing due to substantial cost saves.



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Financial Condition

Assets totaled $858.1 million at June 30, 2005, an increase from December 31, 2004 of $18.7 million, or 2.2%. Gross loans, excluding loans held for sale, increased $17.8 million or 2.5%. Consumer loans increased $5.6 million, or 2.9%, and commercial business loans increased $5.4 million, or 10.1%, while residential and commercial real estate loans held in portfolio increased $6.8 million. Mortgage loans held for sale decreased $2.9 million and mortgage loans sold during the first half of 2005 totaled $12.2 million compared to $29.6 million sold in the first half of last year.

The increase in consumer loans can be attributed to cyclical increases in boat and recreational vehicle loans and a 3% jump in home equity and home improvement loans. Auto loans were down due to the increasing interest rate environment and a very competitive market place. The increase in commercial business loans is primarily due to increased line of credit usage, improving economic climate in some of our markets and participation in several loans outside of our markets. The primary reason for the increase in mortgage loans was cyclical and the reduction of loan sale activity in the 2^nd quarter. Investment securities available for sale increased $2.5 million or 6.3% in order to maintain liquidity targets.

Premises and equipment increased $1.4 million or 11.4% due to the purchase of land for the purpose of building a new branch office in Elkhart county and current construction costs of the new Syracuse, Indiana office completed in June of this year.

Allowance for loan losses was unchanged at $6.9 million when comparing December 31, 2004 to June 30, 2005. Net charge offs for the first half of 2005 were $846,000 or .23% of average loans on an annualized basis compared to $517,000, or .15% of average loans for the comparable period in 2004. The primary reason for the increase was a $240,000 charge-off of a commercial business loan to a distribution center that failed and the collateral (accounts receivable) have proven to be uncollectible. Also, the Bank wrote down $150,000 of an $800,000 commercial business loan because the business generates insufficient cash flow to service the debt and the value of the collateral (fixed assets) is not sufficient to pay off the total debt. As of June 30, 2005 allowance for loan losses as a percentage of loans receivable and non-performing loans was ..94% and 132.89%, respectively.

Total deposits were $606.3 million at June 30, 2005 an increase of $5.9 million, or 1.0% from December 31, 2004. This increase was due primarily to growth in retail certificates of deposit of $14.3 million due to more aggressive pricing in order to maintain existing large balances of maturing IRA deposits. Many of these deposits carried substantially higher rates than current market rates and therefore this strategy reduced our cost of these funds going forward and also attracted new deposits. Also, short term public deposits increased $2.1 million. These increases were partially offset by a decrease in demand and savings deposits of $3.7 million and a decrease in DMMA's of $6.8 million due to the tendency for depositors to shift funds to higher paying CD's as rates increase. Total borrowings increased $12.1 million to $153.7 million at June 30, 2005 from $141.6 million at December 31, 2004 to help fund increased loan demand.



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Stockholders' equity decreased $251,000, or .3%, from $87.9 million at December 31, 2004, to $87.6 million at June 30, 2005. The decrease was due primarily to the repurchase of 141,000 shares of common stock for $3.3 million and dividend payments of $1.2 million. This decrease was partially offset by net income of $3.3 million, Employee Stock Ownership Plan (ESOP) shares earned of $370,000, and RRP shares earned of $128,000. Also, the market value of securities available for sale compared to their book value decreased $139,000 from a loss of $89,000 at December 31, 2004 to a loss of $228,000 at June 30, 2005.

Comparison of the Operating Results for the Three Months Ended June 30, 2005 and 2004

Net income for the second quarter ended June 30, 2005 was $1.7 million, or $.39 for basic and $.38 for diluted earnings per share. This compared to net income for the comparable period in 2004 of $1.8 million, or $.38 for basic and $.37 for diluted earnings per share. Annualized return on assets was .80% and return on equity was 7.69% for the second quarter of 2005 compared to ..89% and 7.59% respectively, for the same period last year.

Net interest income before provision for loan losses decreased $145,000 from $6.8 million for the three months ended June 30, 2004, to $6.7 million for the three months ended June 30, 2005. The primary reason for the decrease was that the net interest margin decreased from 3.66% for the three-month period ended June 30, 2004, to 3.45% for the comparable period in 2005 as yields on interest-earning assets increased at a slower rate than the increase in the cost of interest-bearing liabilities due to the bank being more liability sensitive in an increasing interest rate environment. This lower margin was partially offset by a $28.8 million increase in average interest-earning assets when comparing the second quarter of 2005 to that of 2004.

The provision for loan losses for the second quarter of 2005 was $444,000, compared to $530,000 for last year's comparable period. The decrease was due to lower net charge offs in the current quarter compared to the year ago quarter. Non-performing loans to total loans at June 30, 2005 were .70% compared to .55% at June 30, 2004. Non-performing assets to total assets were ..76% at June 30, 2005 compared to .57% at June 30, 2004.

Non-interest income increased $250,000 or 17.0%, to $1.7 million for the three months ended June 30, 2005 compared to $1.5 million for the same period in 2004. Increases in service fee and commission income, due to a new overdraft privilege program and an increase in annuity and mutual fund sales, were partially offset by a $100,000 reduction in the gain on sale of loans due to reduced mortgage refinancing activity in the 2005 quarter and a $58,000 reduction in other income due primarily to reduced gains on the sale of real estate owned.



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Non-interest expense increased $436,000 or 8.4% to $5.6 million for the three months ended June 30, 2005 compared to $5.2 million for the same period in 2004. The increase was due primarily to increased occupancy and equipment expenses which were up $103,000 due to costs related to two new offices. One opened in May of 2004 in Warsaw, Indiana and the other opened in June of this year in Syracuse, Indiana. Also, we relocated our corporate and investment management and private banking staffs to a recently purchased office building located next to our main office in Muncie. Data processing fees increased $52,000 due to the addition of the two new offices and the expiration of several contractual credits from our service provider received in the 2004 period and not in the 2005 period. Advertising and promotion was up $47,000 due to more advertising campaigns and new office promotions in the 2005 quarter when compared to the second quarter in 2004. Other expenses increased $182,000 due to increases in legal and consulting services primarily related to regulatory compliance requirements and other general and administrative expense increases.

Income tax expense decreased $121,000 for the three months ended June 30, 2005 compared to the same period in 2004 due to less taxable income. The effective tax rate decreased from 29.6% to 27.5% due to an increased percentage of low income housing tax credits to taxable income when comparing the second quarter of 2005 to the second quarter of 2004.

Comparison of the Operating Results for the Six-Months Ended June 30, 2005 and 2004.

Net income for the six months ended June 30, 2005 was $3.3 million or $.76 for basic and $.74 for diluted earnings per share. This compared to net income for the comparable period in 2004 of $3.8 million or $.79 for basic and $.77 for diluted earnings per share. Annualized return on average assets was .78% and return on average equity was 7.54% for the first half of 2005 compared to .93% and 7.84% respectively, for the same period last year.

Net interest income decreased $301,000 for the six months ended June 30, 2005 compared to the six months ended June 30, 2004. The primary reason for the decrease was that the net interest margin decreased from 3.65% for the six-month period ended June 30, 2004, to 3.46% for the comparable period in 2005 as yields on interest-earning assets increased at a slower rate than the increase in the cost of interest-bearing liabilities due to the bank being more liability sensitive in an increasing interest rate environment. This lower margin was partially offset by a $23.5 million increase in average interest-earning assets when comparing the first half of 2005 to that of 2004.

The provision for loan losses for the first half of 2005 was $888,000, compared to $757,000 for last year's comparable period. The increase was due to higher net charge offs in the current period compared the year ago period and higher non-performing loans at the end of the period compared to a year ago. Non-performing loans to total loans at June 30, 2005 were .70% compared to .55% at June 30, 2004. Non-performing assets to total assets were .76% at June 30, 2005 compared to ..57% at June 30, 2004.



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For the six month period ended June 30, 2005 non-interest income increased $246,000 or 8.2% to $3.3 million compared to $3.0 million for the comparable period in 2004. The increase was due primarily to a $431,000 or 29.8% increase in service fee income and a $258,000 or 86.8% increase in commission income due to a new overdraft privilege program and an increase in annuity and mutual fund sales. These increases were partially offset by a $346,000 reduction in the gain on sale of loans due to reduced mortgage refinancing activity in the 2005 period and a $58,000 reduction in other income due primarily to reduced gain on the sale of real estate owned.

Non-interest expense increased $644,000 or 6.1% to $11.2 million for the six months ended June 30, 2005 compared to $10.5 million for the same period in 2005. The increase was due primarily to increased occupancy and equipment expenses which were up $211,000 due to costs related to two new offices. One opened in May of 2004 in Warsaw, Indiana and the other opened in June of this year in Syracuse, Indiana. Also, we relocated our corporate and investment management and private banking staffs to a recently purchased office building located next to our main office in Muncie. Data processing fees increased $49,000 due to the addition of the two new offices and the expiration of several contractual credits from our service provider received in the 2004 period and not in the 2005 period. Advertising and promotion was up $90,000 due to more advertising campaigns and new office promotions in the 2005 period when compared to comparable 2004 quarter. Other expenses increased $259,000 due to increases in legal and consulting services primarily related to regulatory compliance requirements and other general and administrative expense increases.

For the six-month period ended June 30, 2005, income tax expense decreased $345,000 compared to the same period in 2004. The decrease was due primarily to decreased taxable income. The effective tax rate decreased from 29.7% to 27.5% due to an increased percentage of low income housing tax credits to taxable income when comparing the second half of 2005 to the second half of 2004.

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, 2005, Mutual Federal had liquid assets of $61.0 million and a liquidity ratio of 8.14 %. It is anticipated that this level of liquidity will be adequate for the remainder of 2005.



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ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk

Presented below as of June 30, 2005 and 2004 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, 2005
Net Portfolio Value
Changes  In Rates	$ Amount	$ Change	% Change	NPV as % of PV of Assets
				NPV Ratio	Change
+300 bp	67,887	-32,857	-33%	8.54%	-322 bp
+200 bp	79,692	-21,052	-21%	9.78%	-198 bp
+100 bp	91,196	-9,548	-9%	10.91%	-85 bp
0 bp	100,744			11.76%
-100 bp	103,803	3,059	3%	11.90%	14 bp
-200 bp	99,545	-1,199	-1%	11.27%	-49 bp
-300 bp	n/m(1)	n/m(1)	n/m(1)	n/m(1)	n/m(1)

June 30, 2004
Net Portfolio Value
Changes  In Rates	$ Amount	$ Change	% Change	NPV as % of PV of Assets
				NPV Ratio	Change
+300 bp	66,192	-24,370	-27%	8.70%	-236 bp
+200 bp	75,944	-14,618	-16%	9.73%	-132 bp
+100 bp	84,799	-5,763	-6%	10.60%	-46 bp
0 bp	90,562			11.06%
-100 bp	88,411	-2,150	-2%	10.61%	-44 bp
-200 bp	n/m(1)	n/m(1)	n/m(1)	n/m(1)	n/m(1)
-300 bp	n/m(1)	n/m(1)	n/m(1)	n/m(1)	n/m(1)

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

The analysis at June 30, 2005 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, 2004.


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ITEM - 4 Controls and Procedures.

An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a -15(c) under the Securities Exchange Act of 1934 (the "Act") was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedure 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 Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There have been no changes in our internal control over financial reporting (as defined in Rule 13a - - 15(f) under the Act) that occurred during the quarter ended June 30, 2005 that has materially affected, or is likely to materially affect our internal control over financial reporting.

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.




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PART II.        OTHER INFORMATION

Item 1.	Legal Proceedings
	None.
Item 2.	Registered sales of Equity Securities and use of Proceeds
	On December 22, 2004 the Company's Board of Directors authorized management to repurchase an additional 10% of the Company's outstanding stock, or approximately 470,000 shares over a twelve-month period. Information on the shares purchased during the first and second quarter of 2005 is as follows.
		Total Number of Shares Purchased	Average PricePer Share	Total Number of Shares Purchased As Part of Publicly Announced Plan	Maximum Number of Shares that  May Yet Be Purchased Under the Plan
					443,823(1)
	April 1, 2005 -   April 30, 2005	-	$0.00	-	443,823
	May 1, 2005 -   May 31, 2005	42,493	22.88	42,493	401,330
	June 1, 2005 -   June 30, 2005	27,877	22.16	27,877	373,453
		70,370	$22.59	70,370
	(1)        Amount represents the number of shares available to be repurchased under the plan as of December 31, 2004.
Item 3.	Defaults Upon Senior Securities.
	None.
Item 4.	Submission of Matters to Vote of Security Holders.
	The following is a record of the votes cast at the Company's Annual Meeting of Stockholders in the election of directors of the Company:
		FOR		VOTE WITHHELD
	Linn A. Crull	3,997,931		28,137
	Wilbur R. Davis	3,988,083		37,985
	Jon R. Marler	3,991,329		34,739
	Accordingly, the individuals named above, were declared to be duly elected directors of the Company for terms to expire in 2008.
	The following is a record of the votes cast for the proposal to ratify the appointment of BKD,LLP as the Company's independent auditors for the fiscal year ending December 31, 2005.
	FOR	3,996,073
	AGAINST	19,191
	ABSTAIN	10,804
	Accordingly, the proposal described above was declared to be duly adopted by the stockholders of the Corporation.

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Item 5.	Other Information.
	None.
Item 6.	Exhibits.
	(a)	Exhibits

Regulation S-K Exhibit Number	Document			Reference to Prior Filing or Exhibit Number Attached Hereto
2	Plan of acquisition, reorganization, arrangement, liquidation or succession			None
3(i)	Articles of Incorporation			*
3(ii)	Amended Bylaws			++
4	Instruments defining the rights of security holders, including indentures:
	Form ofMutualFirst Financial, Inc. Common Stock Certificate			*
10	Material contracts:
		Employment Agreement with David W. Heeter		+++
		Employment Agreement with Patrick C. Botts		+++
		Employment Agreement with Timothy J. McArdle		**
		Form of Supplemental Retirement Plan Income Agreements for
			R. Donn Roberts, Steven Campbell, Patrick C. Botts, David
			W. Heeter, Timothy J. McArdle and Stephen C. Selby	**
		Form of Director Shareholder Benefit Program Agreement,
			as amended, for Jerry D. McVicker	++
		Form of Agreements for Executive Deferred Compensation
			Plan for R. Donn Roberts, Patrick C. Botts, Steven Campbell,
			David W. Heeter, Timothy J. McArdle and Stephen C. Selby	**
		Registrant's 2000 Stock Option and Incentive Plan		***
		Registrant's 2000 Recognition and Retention Plan		***
		Named Executive Officer Salary and Bonus Arrangements for 2005		+
		Director Fee Arrangements for 2005		+
11	Statement re computation of per share earnings			None
15	Letter re unaudited interim financial information			None
18	Letter re change in accounting principles			None
19	Report furnished to security holders			None
22	Published report regarding matters submitted to vote of security holders			None
23	Consents of Experts and Counsel			None
24	Power of Attorney			None
31.1	Rule 13(a)-14(a) Certification (Chief Executive Officer)			31.1
31.2	Rule 13(a)-14(a) Certification (Chief Financial Officer)			31.2
32	Section 1350 Certification			32

*	Filed as an exhibit to the Company's Form S-1 registration statement filed on September 16, 1999 (File No. 333-87239) pursuant to Section 5 of the Securities Act of 1933. Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
**	Filed as an exhibit to the Company's Annual Report on Form 10-K filed on March 30, 2000 (File No. 000-27905). Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
***	Filed as an Appendix to the Company's Form S-4/A Registration Statement filed on October 19, 2000 (File No. 333-46510). Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
+	Filed as an exhibit to the Company's Annual Report on Form 10-K filed on March 16, 2005 (File No. 000-27905). Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
++	Filed as an exhibit to the Company's Annual Report on Form 10-K filed on April 2, 2001 (File No. 000-27905). Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.
+++	Filed as an exhibit to the Company's Annual Report on Form 10-K filed on March 15, 2004 (File No. 000-27905). Such previously filed document is incorporated herein by reference in accordance with Item 601 of Regulation S-K.

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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: August 9, 2005	By:	/s/  David W. HeeterDavid W. Heeter President and Chief Executive Officer
Date: August 9, 2005	By:	/s/  Timothy J. McArdleTimothy J. McArdle Senior Vice President and Treasurer

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EXHIBIT INDEX

Exhibit Number	Document
31.1	Rule 13(a)-14(a) Certification (Chief Executive Officer)
31.2	Rule 13(a)-14(a) Certification (Chief Financial Officer)
32	Section 1350 Certification

22End.