MutualFirst Announces Third Quarter 2008 Earnings

MUNCIE, Ind., Oct. 23 /PRNewswire-FirstCall/ -- MutualFirst Financial,
Inc. (Nasdaq: MFSF), the holding company of MutualBank (the "Bank"), announced
today that net income for the third quarter ended September 30, 2008 was
$359,000, or $.06 for basic and diluted earnings per share. This compared to
net income for the comparable period in 2007 of $1.2 million, or $.28 for
basic and diluted earnings per share. Annualized return on assets was .11%
and return on average tangible equity was 1.77% for the third quarter of 2008
compared to .49% and 6.45%, respectively, for the same period last year.
Net income for the nine months ended September 30, 2008 was $2.7 million,
or $.58 for both basic and diluted earnings per share. This compared to net
income for the comparable period in 2007 of $3.3 million, or $.81 for basic
and $.80 for diluted earnings per share. Annualized return on average assets
was .34% and return on average tangible equity was 4.91% for the first nine
months of 2008 compared to .47% and 6.16% respectively, for the same period
last year.
Net income for the three months ended September 30, 2008 decreased
primarily due to several one-time charges totaling approximately $2.1 million,
net of tax, or $.35 per share, including the previously announced loss on the
sale of the AMF Ultra Funds, expenses related to the acquisition of MFB Corp.
and a write-down on a Lehman senior corporate bond in the investment portfolio
during the third quarter. These losses were partially offset by a one-time
gain of approximately $660,000, net of tax, or $.11 per share in a bulk sale
of fixed rate residential mortgage loans. Earnings, without the one-time
quarterly adjustments, would have been $.30 per share. "The current operating
environment continues to challenge the banking industry. We are pleased that
we continue to see strong core earnings throughout this difficult time in our
industry," Dave Heeter, President and CEO of MutualFirst said.
On July 18, 2008, MutualFirst Financial completed the purchase of MFB
Corp. The assets purchased primarily included residential mortgage loans of
$167.9 million, consumer loans of $48.5 million, commercial real estate loans
of $91.6 million and commercial business loans of $75.5 million. The
liabilities assumed included $331.1 million in deposits and $96.4 million in
borrowings. Heeter commented, "Despite the one-time events during this
quarter, our core earnings reflect the successful integration of MFB Corp that
will allow our organization to be stronger as we move forward."
With the addition of MFB Corp, assets totaled $1.4 billion at September
30, 2008, an increase from December 31, 2007 of $436.4 million, or 45.3%.
Loans, excluding loans held for sale, increased $319.4 million, or 39.8%, due
primarily to the acquisition of $383.1 million of net loans from MFB Corp.
Consumer loans increased $44.6 million, or 19.8%, residential mortgage loans
held in the portfolio increased $91.8 million, or 20.7%, and commercial loans
increased $183.0 million, or 128.2%. Mortgage loans held for sale increased
$1.1 million and mortgage loans sold during the first nine months of 2008
totaled $86.6 million. The increased loan balances are due primarily to the
purchase of MFB Corp in the third quarter of 2008. Total net loans, excluding
the amount of acquired loans, declined $63.7 million primarily due to the sale
of $58.4 million of fixed rate mortgage loans in the third quarter of 2008.
Investment securities available for sale increased $20.1 million, or 45.9%,
compared to December 31, 2007 due primarily to $23.9 million acquired with MFB
Corp. Investment securities held to maturity increased $9.9 million due to
the redemption in kind securities received in the previously announced sale of
the AMF Ultra Funds.
Allowance for loan losses increased $3.9 million, including $3.0 million
acquired with MFB Corp, to $12.2 million at September 30, 2008 when compared
to December 31, 2007. Net charge offs for the first nine months of 2008 were
$1.3 million, or .20% of average loans on an annualized basis, compared to
$1.4 million, or .23% of average loans for the comparable period in 2007. The
decrease was primarily due to larger recoveries during the 2008 period. As of
September 30, 2008 the allowance for loan losses as a percentage of loans
receivable and non-performing loans was 1.08% and 66.06%, respectively,
compared to 1.00% and 78.62%, respectively, at December 31, 2007.
Total deposits were $978.9 million at September 30, 2008, an increase of
$312.5 million at December 31, 2007. This increase was due primarily to the
assumption of $331.1 million in deposits from MFB Corp. Total borrowings
increased $80.0 million to $276.7 million at September 30, 2008 from $196.6
million at December 31, 2007 due primarily to the assumption of $96.4 million
in borrowings from MFB Corp.
Stockholders' equity increased $37.0 million, or 42.5%, from $87.0 million
at December 31, 2007, to $124.0 million at September 30, 2008. The increase
was due primarily to stock issued to acquire MFB Corp of $39.8 million, net
income of $2.7 million, and Employee Stock Ownership Plan (ESOP) and RRP
shares earned of $295,000. This increase was partially offset by the
repurchase of 144,000 shares of common stock for $1.7 million and dividend
payments of $2.4 million. Also, the market value of securities available for
sale compared to their book value decreased $1.7 million from a loss of
$414,000 at December 31, 2007 to a loss of $2.1 million at September 30, 2008.
The Bank continues to maintain capital ratios which exceed "well-capitalized"
levels as defined pursuant to all regulatory standards as of September 30,
2008.
Net interest income before the provision for loan losses increased $4.0
million from $5.9 million for the three months ended September 30, 2007 to
$9.8 million for the three months ended September 30, 2008. The reasons for
the increase were a $320.9 million, or 36.9%, increase in average interest
earning assets and a 62 basis point increase in the net interest margin from
3.13% for the three months ended September 30, 2007 to 3.31% for the same
period in 2008. The increase in average interest earning assets was due
primarily to the acquisition of MFB Corp in the third quarter of 2008.
Net interest income before the provision for loan losses increased $5.0
million for the nine months ended September 30, 2008 compared to the nine
months ended September 30, 2007. The reasons for the increase were similar to
those stated above. Average interest earning assets increased $111.3 million,
or 12.9% and the net interest margin increased by 38 basis points from 2.77%
for the nine months ended September 30, 2007 to 3.15% for the same period in
2008.
The provision for loan losses for the third quarter of 2008 was $912,000,
compared to $532,000 for last year's comparable period. Non-performing loans
to total loans at September 30, 2008 were 1.63% compared to 1.27% at September
30, 2007. Non-performing assets to total assets were 1.64% at September 30,
2008 compared to 1.37% at September 30, 2007.
The provision for loan losses for the nine months ended September 30, 2008
was $2.3 million, compared to $1.4 million for last year's comparable period.
The reason for the increase is higher loan balances and more non-performing
loans.
Non-interest income decreased $900,000 to $1.1 million, or 44.5%, for the
three months ended September 30, 2008 compared to the same period in 2007.
The decrease was due primarily to losses related to the sale of the AMF Ultra
Funds of $2.6 million and a write-down of a Lehman's corporate bond of
$200,000. These decreases were partially offset by a $1.0 million gain from a
$51.6 million bulk loan sale. Core non-interest income increased $878,000, or
43.8%, after removing the one-time items mentioned above. This increase was
due primarily to increases in fees and service charges on deposit accounts of
$549,000, increases in commission income of $274,000, and increases in
earnings on cash surrender value of life insurance of $59,000. All of these
increases were due primarily to the MFB acquisition.
For the nine month period ended September 30, 2008 non-interest income
decreased $350,000, or 6.2%, to $5.3 million compared to $5.7 million for the
same period in 2007. The reasons are similar to those mentioned above. Core
non-interest income for the nine month period ended September 30, 2008
increased $1.3 million, or 22.5%, after removing one-time items. This
increase was primarily due to increases in fees and service charges on deposit
accounts of $765,000, increases in commission income of $432,000, and
increases in earnings on cash surrender value of life insurance of $202,000.
Non-interest expense increased $3.9 million for the three months ended
September 30, 2008 compared to the same period in 2007. Increases in current
quarter non-interest expense compared to the same period in 2007 include
increases in salaries and employee benefits of $1.6 million, increases in
occupancy expense of $357,000, increases in data processing expense of
$100,000, increases in professional fees of $205,000, increases in marketing
of $271,000 and increases in other expenses of $1.4 million. These increases
were primarily due to the acquisition of MFB Corp. Non-interest expense of
approximately $470,000 was a one-time merger-related expense in this quarter.
Non-interest expense increased $4.9 million to $23.5 million for the nine
months ended September 30, 2008 compared to $18.6 million for the same period
in 2007 primarily due to the same reasons mentioned above.
MutualFirst Financial, Inc. and MutualBank are headquartered in Muncie,
Indiana with thirty-three full service retail financial centers offices in
Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash counties.
MutualBank also has trust offices in Carmel and Crawfordsville, Indiana and a
loan origination office in New Buffalo, Michigan.
Statements contained in this release, which are not historical facts, are
forward-looking statements, as that term is defined in the Private Securities
Reform Act of 1995. Such forward-looking statements are subject to risks and
uncertainties, which could cause actual results to differ from those currently
anticipated due to a number of factors, which include, but are not limited to
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.

MUTUALFIRST FINANCIAL INC.

Selected Financial Condition Data 30-Sep 31-Dec
(Unaudited): 2008 2007
--------------------------------- --------- ---------
(000) (000)

Total Assets $1,398,891 $962,517

Cash and cash equivalents 31,584 23,648

Loans held for sale 2,766 1,645

Loans receivable, net 1,121,878 802,436

Investment securities held to maturity 9,864 -

Investment securities available for sale,
at fair value 73,622 43,692

Total deposits 978,894 666,407

Total borrowings 276,663 196,638

Total stockholders' equity 123,974 87,014

Three Three Three
Months Months Months
Ended Ended Ended
30-Sep 30-Jun 30-Sep
Selected Operations Data
(Unaudited): 2008 2008 2007
------------------------- --------- --------- --------
(000) (000) (000)

Total interest income $18,825 $13,489 $14,128
Total interest expense 8,989 6,689 8,277
-------- -------- --------
Net interest income 9,836 6,800 5,851
Provision for loan losses 912 733 532
-------- -------- -------
Net interest income after
provision for loan losses 8,924 6,067 5,319
-------- -------- -------
Non-interest income
-------------------------
Fees and service charges 1,815 1,365 1,266
Net loss on sale of securities (2,770)
Equity in losses of limited
partnerships (45) (24) (23)
Commissions 591 308 317
Net gain on loan sales
and servicing 1,112 157 90
Increase in cash surrender
value of life insurance 357 276 298
Other income 52 27 56
Total non-interest income 1,112 2,109 2,004

Non-interest expense
-------------------------
Salaries and benefits 5,278 3,892 3,633
Occupancy and equipment 1,253 999 896
Data processing fees 359 243 259
Professional fees 381 231 176
Marketing 444 317 173
Other expenses 2,420 1,189 1,061
-------- -------- --------
Total non-interest
expense 10,135 6,871 6,198
-------- -------- --------
Income before taxes (99) 1,305 1,125
-------- -------- --------
Income tax provision
(benefit) (458) 131 (36)
-------- -------- --------
Net income $359 $1,174 $1,161
======== ======== ========

Nine Nine
Months Months
Ended Ended
30-Sep 30-Sep
Selected Operations Data
(Unaudited): 2008 2007
------------------------ -------- --------
(000) (000)

Total interest income 46,071 $41,993
Total interest expense 23,075 24,032
-------- --------
Net interest income 22,996 17,961
Provision for loan losses 2,257 1,397
-------- --------
Net interest income after provision
for loan losses 20,739 16,564
-------- --------
Non-interest income
Fees and service charges 4,340 3,575
Net loss on sale of securities (2,633)
Equity in losses of limited
partnerships (92) (76)
Commissions 1,190 758
Net gain on loan sales and
servicing 1,479 277
Increase in cash surrender
value of life insurance 909 953
Other income 148 204
Total non-interest income 5,341 5,691
-------- --------
Non-interest expense
Salaries and benefits 12,988 10,926
Occupancy and equipment 3,250 2,668
Data processing fees 869 814
Professional fees 821 532
Marketing 991 610
Other expenses 4,589 3,072
-------- --------
Total non-interest expense 23,508 18,622
-------- --------
Income before taxes 2,572 3,633
Income tax provision (benefit) (176) 300
-------- --------
Net income $2,748 $3,333
======== ========

Average Balances, Net Interest
Income, Yield Earned and Rates Paid
Three
mos ended
9/30/2008
---------
Average Interest Average
Outstanding Earned/ Yield/
Balance Paid Rate
----------- --------- ---------
(000) (000)
Interest-Earning Assets:
Interest -bearing deposits $13,985 $44 1.26%
Mortgage-backed securities:
Available-for-sale 36,964 512 5.54
Held-to-maturity 3,643 127 13.94
Investment securities:
Available-for-sale 29,535 295 4.00
Loans receivable 1,089,002 17,603 6.47
Stock in FHLB of Indianapolis 16,723 244 5.84
--------- --------- ---------
Total interest-earning assets (3) 1,189,852 18,825 6.33
Non-interest earning assets, net of
allowance for loan losses and unrealized
gain/loss 140,950
---------
Total assets $1,330,802
=========

Interest-Bearing Liabilities:
Demand and NOW accounts $159,891 433 1.08
Savings deposits 75,793 71 0.37
Money market accounts 43,906 226 2.06
Certificate accounts 547,817 5,159 3.77
--------- --------- ---------
Total deposits 827,407 5,889 2.85
Borrowings 280,693 3,101 4.42
--------- --------- ---------
Total interest-bearing accounts 1,108,100 8,990 3.25
Non-interest bearing deposit accounts 89,338
Other liabilities 21,887
---------
Total liabilities 1,219,325
Stockholders' equity 111,477
---------
Total liabilities and
stockholders' equity $1,330,802
=========

Net earning assets $81,752
=========

Net interest income $9,835
=========
Net interest rate spread 3.08%
=========
Net yield on average interest-earning
assets 3.31%
=========
Average interest-earning assets to
average interest-bearing liabilities 107.38%
=========

Three
mos ended
9/30/2007
---------
Average Interest Average
Outstanding Earned/ Yield/
Balance Paid Rate
----------- --------- ---------
(000) (000)
Interest-Earning Assets:
Interest -bearing deposits $2,063 $20 3.88%
Mortgage-backed securities:
Available-for-sale 8,449 128 6.06
Held-to-maturity
Investment securities:
Available-for-sale 30,629 416 5.43
Loans receivable 817,878 13,453 6.58
Stock in FHLB of Indianapolis 9,938 112 4.51
----------- --------- ---------
Total interest-earning assets (3) 868,957 14,129 6.50
Non-interest earning assets, net of
allowance for loan losses and unrealized
gain/loss 88,519
-----------
Total assets $957,476
===========

Interest-Bearing Liabilities:
Demand and NOW accounts $129,503 752 2.32
Savings deposits 54,338 71 0.52
Money market accounts 24,279 166 2.73
Certificate accounts 441,917 5,270 4.77
----------- --------- ---------
Total deposits 650,037 6,259 3.85
Borrowings 155,649 2,018 5.19
----------- --------- ---------
Total interest-bearing accounts 805,686 8,277 4.11
Non-interest bearing deposit accounts 48,616
Other liabilities 15,911
Total liabilities 870,213
Stockholders' equity 87,263
-----------
Total liabilities and stockholders'
equity $957,476
===========
Net earning assets $63,271
===========
Net interest income $5,852
===========
Net interest rate spread 2.39%
==========
Net yield on average interest-earning
assets 2.69%
==========
Average interest-earning assets to
average interest-bearing liabilities 107.85%
==========

Three Three Three
Months Months Months
Ended Ended Ended
30-Sep 30-Jun 30-Sep
Selected Financial Ratios and Other 2008 2008 2007
Financial Data (Unaudited): -------- -------- --------
-----------------------------------
Share and per share data:
Average common shares outstanding
Basic 6,188,036 3,970,982 4,102,302
Diluted 6,204,883 3,970,982 4,144,979
Per share:
Basic earnings $0.06 $0.30 $0.28
Diluted earnings $0.06 $0.30 $0.28
Dividends $0.16 $0.16 $0.15

Dividend payout ratio 266.67% 53.33% 53.57%

Performance Ratios:
Return on average assets (ratio of
net income to average total
assets)(1) 0.11% 0.49% 0.49%
Return on average tangible equity
(ratio of net income to average
tangible equity)(1) 1.77% 6.58% 6.45%
Interest rate spread information:
Average during the period(1) 3.08% 2.90% 2.39%

Net interest margin(1)(2 3.31% 3.13% 2.69%

Efficiency Ratio 92.57% 77.12% 78.91%

Ratio of average interest-earning
assets to average interest-
bearing liabilities 107.38% 107.68% 107.85%

Allowance for loan losses:
Balance beginning of period $8,604 $8,440 $8,277
Charge offs:
One- to four- family 226 113 360
Multi-family 0 0 0
Commercial real estate 140 153 26
Construction or development 0 0 0
Consumer loans 462 541 332
Commercial business loans 0 0 36
--------- --------- ---------
Sub-total 828 807 754

Recoveries:
One- to four- family 5 35 9
Multi-family 0 0 0
Commercial real estate 314 0 0
Construction or development 0 0 0
Consumer loans 256 203 117
Commercial business loans 0 0 1
--------- --------- ---------
Sub-total 575 238 126

Net charge offs 253 569 628
Acquired with MFB Financial acquisition 2,954
Additions charged to operations 912 733 532
--------- --------- ---------
Balance end of period $12,217 $8,604 $8,181
========= ========= =========

Net loan charge-offs to average
loans (1) 0.09% 0.28% 0.31%

Nine Nine
Months Months
Ended Ended
30-Sep 30-Sep
Selected Financial Ratios and Other 2008 2007
Financial Data (Unaudited): --------- ---------
-------------------------------------
Share and per share data:
Average common shares outstanding
Basic 4,723,430 4,117,685
Diluted 4,729,045 4,172,017
Per share:
Basic earnings $0.58 $0.81
Diluted earnings $0.58 $0.80
Dividends $0.48 $0.45

Dividend payout ratio 82.76% 56.25%

Performance Ratios:
Return on average assets (ratio of
net income to average total assets)(1) 0.34% 0.47%
Return on average tangible equity
(ratio of net income to average tangible
equity)(1) 4.91% 6.16%
Interest rate spread information:
Average during the period(1) 2.91% 2.48%

Net interest margin(1)(2) 3.15% 2.77%

Efficiency Ratio 82.96% 78.73%

Ratio of average interest-earning
assets to average interest-bearing
liabilities 107.53% 108.07%

Allowance for loan losses:
Balance beginning of period $8,352 $8,156
Charge offs:
One- to four- family 341 544
Multi-family 0 0
Commercial real estate 324 26
Construction or development 0 0
Consumer loans 1,551 1,059
Commercial business loans 30 303
--------- ---------
Sub-total 2,246 1,932

Recoveries:
One- to four- family 42 57
Multi-family 0 0
Commercial real estate 314 0
Construction or development 0 0
Consumer loans 487 302
Commercial business loans 57 201
--------- ---------
Sub-total 900 560

Net charge offs 1,346 1,372
Acquired with MFB Financial
acquisition 2,954
Additions charged to operations 2,257 1,397
--------- ---------
Balance end of period $12,217 $8,181
========= =========
Net loan charge-offs to average loans (1) 0.20% 0.23%

September 30, June 30, September 30,
2008 2008 2007
---------- --------- ---------

Total shares outstanding 6,994,754 4,118,079 4,299,138
Tangible book value per share $12.47 $16.60 $16.87

Nonperforming assets (000's)
Loans: Non-accrual $17,252 $10,526 $8,603
Accruing loans past due 90
days or more 1,138 350 1,695
Restructured loans 103 105 108
--------- --------- ---------
Total nonperforming loans 18,493 10,981 10,406
Real estate owned 2,818 2,302 1,599
Other repossessed assets 1,671 1,483 1,282
--------- --------- ---------
Total nonperforming assets $22,982 $14,766 $13,287

Asset Quality Ratios:
Non-performing assets to total assets 1.64% 1.51% 1.37%
Non-performing loans to total loans 1.63% 1.37% 1.27%
Allowance for loan losses to non-
performing loans 66.06% 78.35% 78.62%
Allowance for loan losses to loans
receivable 1.08% 1.07% 1.00%

(1) Ratios for the three and nine month period have been annualized.

(2) Net interest income divided by average interest earning assets.

(3) Calculated net of deferred loan fees, loan discounts, loans in
process and loss reserves.

SOURCE MutualFirst Financial, Inc.

Tim McArdle, Senior Vice President and Treasurer of MutualFirst Financial,
Inc., +1-765-747-2818