MutualFirst Announces Increased 2010 Earnings

MUNCIE, Ind.,Feb. 11, 2011 /PRNewswire/ –MutualFirst Financial, Inc. (Nasdaq:
MFSF), the holding company of MutualBank (the “Bank”), announced today that net
income available to common shareholders for the year ended December 31, 2010 was
$4.7 million, or $.69 for basic and diluted earnings per common share. This
compared to net income available to common shareholders for the year ended
December 31, 2009 of $1.4 million, or $.20 for basic and diluted earnings per
common share. Return on assets was .45% and return on average tangible common
equity was 4.96% for the year ended 2010 compared to .23% and 1.49%
respectively, for the year ended 2009.

Other financial highlights for the year ended December 31, 2010 include:

— Gross loans decreased $80.8 million, or 7.5% in 2010 while available for
sale investment securities increased $114.3 million.
— Net charge offs increased to $7.1 million, or .69% of average loans from
$5.2 million, or .47% in 2009. Non-accrual loans increased by $1.1
million to $30.2 million as of December 31, 2010 compared to $29.1
million as of December 31, 2009.
— Deposits increased $76.4 million, or 7.3% in 2010. Transactional
deposits increased $52.2 million, or 13.1% and certificates of deposit
increased $24.2 million, or 3.7%. Borrowings decreased $70.4 million, or
33.2%.
— Net-interest income increased $1.0 million over 2009.
— Non-interest income increased $938,000 over 2009.
— Non-interest expense decreased $3.5 million over 2009.

“We believe we had a successful 2010 by improving earnings in this volatile
environment. While we are still prudently working through credit issues, we
believe 2010 was a very good year,” said David W. Heeter, President and CEO.

Assets totaled $1.4 billion at December 31, 2010, an increase from December 31,
2009 of $5.5 million, or 0.4%, as cash received from loan sales and prepayments
was reinvested into securities. Gross loans, excluding loans held for sale,
decreased $80.8 million, or 7.5%. Decreases in residential mortgage loans of
$25.4 million, or 5.3% was primarily due to loans sold in 2010 of $82.8 million.
Decreases in consumer loans of $32.0 million, or 12.3% was primarily due to
ceasing originations of certain indirect lending products in 2010. Decreases in
commercial loans of $23.4 million, or 7.0% was primarily due to allowing certain
loans to prepay and working through problem loans in 2010. The paydowns in the
loan portfolio were used to increase investment securities available for sale by
$114.3 million, or 87.3% which were primarily invested in agency mortgage-backed
securities.

Net income available to common shareholders for the three months ended December
31, 2010 was $1.4 million, or $.20 for basic and diluted earnings per common
share. This compared to a net loss for the comparable period in 2009 of $1.6
million, or $.24 for basic and diluted earnings per share. The net loss in
fourth quarter 2009 was primarily due to other-than-temporary impairment on
securities of $2.4 million. Annualized return on average assets was .50% and
return on average tangible common equity was 5.61% for the three months ended
December 31, 2010 compared to a negative 0.34% and a negative 7.06%
respectively, for the same period last year.

Allowance for loan losses remained constant at $16.4 million as of December 31,
2010 when compared to December 31, 2009. Net charge offs for the quarter ended
December 31, 2010 were $1.9 million, or .74% of average loans on an annualized
basis compared to $1.9 million, or .69% of average loans for 2009. Net charge
offs for the year ended December 31, 2010 were $7.1 million, or .69% of average
loans compared to $5.2 million, or .47% of average loans for the comparable
period in 2009. The allowance for loan losses as a percentage of non-performing
loans and total loans was 42.16% and 1.64%, respectively at December 31, 2010
compared to 50.38% and 1.53%, respectively at December 31, 2009 and 52.18% and
1.62%, respectively at September 30, 2010. The decline in allowance for loan
losses as a percentage of non-performing loans was primarily due to $7.1 million
of troubled debt restructurings classified as non-performing loans which were
performing per their restructured agreements. On a linked quarter basis net
charge offs decreased from an annualized .78% of average loans for the quarter
ended September 30, 2010 to .74% for the current quarter. Heeter commented, “We
continue to actively monitor our loan portfolio and we believe our allowance is
adequate for the current level of risk in our portfolio.”

Total deposits were $1.1 billion at December 31, 2010 an increase of $76.4
million, or 7.3% from December 31, 2009. This increase was due to increases in
transactional deposits of $52.2 million and certificates of deposit of $24.2
million. Transactional deposits compared to total deposits increased to 40% as
of December 31, 2010 compared to 38% as of December 31, 2009. Total borrowings
decreased $70.4 million to $141.7 million at December 31, 2010 from $212.1
million at December 31, 2009. The decrease in total borrowings was a direct
result of increasing retail deposits and paying down maturing borrowings in
order to reduce interest costs.

Stockholders’ equity was $131.1 million at December 31, 2010, an increase of
$1.4 million, or 1.1% from December 31, 2009. The increase was a result of net
income of $6.6 million and Employee Stock Ownership Plan (ESOP) shares earned
and share based compensation of $257,000. The increase was partially offset by
dividend payments of $1.6 million to common shareholders and $1.6 million to
preferred shareholders. Accumulated other comprehensive income decreased $2.1
million as unrealized gains on securities and derivatives decreased $2.3 million
and unrealized gains on defined benefit plans increased $124,000. The Bank’s
risk-based capital ratio increased to 13.79% as of December 31, 2010 from 12.81%
as of December 31, 2009. The Bank’s capital ratios are well in excess of
“well-capitalized” levels as defined by all regulatory standards.

Net interest income before the provision for loan losses decreased $59,000 from
$10.3 million for the three months ended December 31, 2009 to $10.2 million for
the three months ended December 31, 2010. The primary reason for the decrease
was a decrease in net interest margin of 14 basis points to 3.10% in the fourth
quarter 2010 compared to 3.24% for the fourth quarter 2009. This decrease was
partially offset by an increase in average earning assets of $50.0 million due
to an increased investment portfolio.

Net interest income before the provision for loan losses increased $1.0 million
from $41.2 million for the year ended December 31, 2009 to $42.2 million for the
year ended December 31, 2010. The primary reason for the increase was an
increase in average earning assets of $36.3 million due to an increased
investment portfolio. Net interest margin declined 3 basis points to 3.19% for
the year ended December 31, 2010 compare to 3.22% for the year ended December
31, 2009.

The provision for loan losses for the fourth quarter of 2010 was $1.8 million,
an increase of $125,000 from last year’s comparable period. The current
provision continues to provide the appropriate level of allowance to meet the
Bank’s internal allowance calculation requirements. Non-performing loans to
total loans at December 31, 2010 were 3.90% compared to 3.03% at December 31,
2009. This increase in the non-performing loan ratio was primarily due to $7.1
million of troubled debt restructurings classified as non-performing loans which
were performing per their restructured agreements. Non-performing assets to
total assets increased to 3.20% at December 31, 2010 compared to 2.86% at
December 31, 2009 due to the troubled debt restructurings.

The provision for loan losses for the year ended 2010 was $7.1 million, an
increase of $550,000 from 2009. The increase in provision was primarily due to
increased net charge offs in 2010 compared to 2009. Allowance for loan losses to
loans receivable was 1.64% as of December 31, 2010 compared to 1.53% as of
December 31, 2009.

Non-interest income increased $2.1 million to $3.9 million for the three months
ended December 31, 2010 compared to the same period in 2009. This increase was
primarily due to a decrease in other-than-temporary impairment on securities of
$2.3 million. Other increases in non-interest income included $660,000 of
increased gain on sale of loans, including the reversal of $175,000 of the
mortgage servicing rights valuation and $76,000 of increased commission income.
Decreases in non-interest income included decreased gain on investment sales of
$328,000, decreased service fee income of $163,000 primarily due to overdraft
regulations and decreased equity in limited partnerships of $469,000 primarily
due to gains received in the fourth quarter of 2009 which was not duplicated in
2010.

For the year ended December 31, 2010 non-interest income increased $938,000 to
$14.1 million compared to $13.2 million for 2009. Increases in non-interest
income included increased commission income of $798,000, increased income on
cash surrender value of life insurance of $218,000 primarily due to a death
benefit and decreased other-than-temporary impairment of securities of $1.7
million. Decreases in non-interest income included decreased gain on sale of
investments of $808,000, decreased equity in limited partnerships of $618,000
primarily due to one-time gains in 2009 not duplicated in 2010 and decreased
service fee income of $229,000 primarily due to overdraft regulation.

Non-interest expense decreased $1.8 million to $10.1 million for the three
months ended December 31, 2010 compared to $11.9 million for the same period in
2009. The decreases in non-interest expense for the current quarter compared to
the same period in 2009 included decreases in salaries and benefits of $980,000
primarily due to staff reductions and retirements, decreases in repossessed
asset expense of $351,000, decreases in occupancy and equipment of $109,000,
decreases in marketing expense of $73,000, decreases in professional fees of
$70,000 and decreases in other expenses of $284,000. The decreases were
partially offset by increases in deposit insurance expense of $53,000 primarily
due to increased deposits and increases in software subscriptions and
maintenance of $43,000.

For the year ended December 31, 2010 non-interest expense decreased $3.5 million
to $41.0 million compared to $44.5 million in 2009. The decrease in non-interest
expenses was primarily due to decreases in salaries and benefits expenses of
$2.0 million, decreases in deposit insurance of $432,000 primarily due to the
one-time assessment in 2009, decreases in marketing expense of $306,000 and
decreases in other expenses of $500,000.

Heeter concluded, “The current economic and regulatory environment has created a
lot of stress on community banking. We believe we have handled every challenge
and will continue to work to increase the value of our Company to the
shareholders.”

MutualFirst Financial, Inc. and MutualBank, an Indiana-based financial
institution, has thirty-three full-service retail financial centers in Delaware,
Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash Counties in Indiana.
MutualBank also has two Wealth Management and Trust offices located in Carmel
and Crawfordsville, Indiana and a loan origination office in New Buffalo,
Michigan. MutualBank is a leading residential lender in each of the market areas
it serves, and provides a full range of financial services including wealth
management and trust services and Internet banking services. The Company’s stock
is traded on the NASDAQ National Market under the symbol “MFSF” and can be found
on the internet at www.bankwithmutual.com.

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,
factors discussed in documents filed by the Company with the Securities and
Exchange Commission from time to time.

FINANCIAL
MUTUALFIRST INC.
———– ———

December
December 31, 31,
Balance Sheet (Unaudited): 2010 2009
————————– —- —-
(000) (000)
Assets
Cash and cash equivalents $26,821 $46,341
Investment securities – AFS 245,165 130,914
Investment securities – HTM 0 8,147
Loans held for sale 10,483 2,521
Loans, gross 995,273 1,076,108
Allowance for loan loss (16,372) (16,414)
——- ——-
Net loans 978,901 1,059,694
Premise and equipment 32,966 34,556
FHLB of Indianapolis stock 16,682 18,632
Investment in limited partnerships 3,624 4,161
Cash surrender value of life insurance 45,566 44,247
Prepaid FDIC premium 4,208 5,907
Core deposit and other intangibles 4,533 5,881
Deferred income tax benefit 19,056 19,514
Other assets 16,509 18,519
Total assets $1,404,514 $1,399,034
========== ==========

Liabilities and Stockholders’ Equity
Deposits $1,121,569 $1,045,196
FHLB advances 128,537 197,960
Other borrowings 13,167 14,114
Other liabilities 10,101 12,037
Stockholders’ equity 131,140 129,727
Total liabilities and stockholders’ equity $1,404,514 $1,399,034
========== ==========

Three Three
Three Months Months Months
Ended Ended Ended
September December
December 31, 30, 31,
Income Statement (Unaudited): 2010 2010 2009
—————————– —- —- —-
(000) (000) (000)

Total interest income $16,025 $16,725 $17,378
Total interest expense 5,803 6,110 7,097
—– —– —–

Net interest income 10,222 10,615 10,281
Provision for loan losses 1,775 2,225 1,650
—– —– —–
Net interest income after provision
for loan losses 8,447 8,390 8,631
—– —– —–

Non-interest income
——————-
Fees and service charges 1,773 1,829 1,936
Net gain (loss) on sale of investments 8 (282) 336
Other-than-temporary impairment of
securities (15) (197) (2,355)
Equity in losses of limited
partnerships (128) (128) 341
Commissions 925 896 849
Net gain (loss) on loan sales 866 846 206
Net servicing fees 37 34 52
Increase in cash surrender value of
life insurance 406 630 390
Other income 41 15 25
— — —
Total non-interest income 3,913 3,643 1,780
—– —– —–

Non-interest expense
——————–
Salaries and benefits 5,096 5,315 6,076
Occupancy and equipment 1,373 1,403 1,482
Data processing fees 407 363 407
Professional fees 249 306 319
Marketing 324 296 397
Deposit insurance 467 465 414
Software subscriptions and maintenance 377 377 334
Intangible amortization 315 327 359
Repossessed assets expense 548 308 899
Other expenses 907 973 1,191
— — —–
Total non-interest expense 10,063 10,133 11,878
—— —— ——

Income before taxes 2,297 1,900 (1,467)
Income tax provision 484 279 (278)
Net income 1,813 1,621 (1,189)
Preferred stock dividends and
amortization 451 451 451
Net income available to common
shareholders $1,362 $1,170 ($1,640)
====== ====== =======

Twelve Twelve
Months Months
Ended Ended
December December
31, 31,
Income Statement (Unaudited): 2010 2009
—————————– —- —-
(000) (000)

Total interest income $67,398 $71,852
Total interest expense 25,195 30,624
—— ——

Net interest income 42,203 41,228
Provision for loan losses 7,050 6,500
—– —–
Net interest income after provision
for loan losses 35,153 34,728
—— ——

Non-interest income
——————-
Fees and service charges 7,229 7,458
Net gain (loss) on sale of investments (53) 755
Other-than-temporary impairment of
securities (841) (2,555)
Equity in losses of limited
partnerships (510) 108
Commissions 3,845 3,047
Net gain (loss) on loan sales 2,275 2,377
Net servicing fees 139 245
Increase in cash surrender value of
life insurance 1,791 1,573
Other income 216 145
— —
Total non-interest income 14,091 13,153
—— ——

Non-interest expense
——————–
Salaries and benefits 21,078 23,047
Occupancy and equipment 5,574 5,677
Data processing fees 1,569 1,510
Professional fees 1,141 1,291
Marketing 1,224 1,530
Deposit insurance 1,831 2,263
Software subscriptions and maintenance 1,554 1,378
Intangible amortization 1,348 1,525
Repossessed assets expense 1,936 2,025
Other expenses 3,761 4,261
—– —–
Total non-interest expense 41,016 44,507
—— ——

Income before taxes 8,228 3,374
Income tax provision 1,676 211
—– —
Net income 6,552 3,163
Preferred stock dividends and
amortization 1,803 1,803
Net income available to common
shareholders $4,749 $1,360
====== ======

Average Balances, Net Interest Income, Yield Earned and Rates Paid
——————————————————————-

Three
mos ended
12/31/2010
———-
Average Interest Average
Outstanding Earned/ Yield/
Balance Paid Rate
——- —- —-
(000) (000)
Interest-Earning Assets:
Interest -bearing deposits $66,691 $38 0.23%
Mortgage-backed securities:
Available-for-sale 197,273 1,433 2.91
Held-to-maturity 0 0 -
Investment securities:
Available-for-sale 24,039 159 2.65
Loans receivable 1,012,562 14,301 5.65
Stock in FHLB of Indianapolis 17,722 94 2.12
—— — —-
Total interest-earning assets (3) 1,318,287 16,025 4.86
Non-interest earning assets, net of
allowance
for loan losses and unrealized gain/
loss 128,080
Total assets $1,446,367
==========

Interest-Bearing Liabilities:
Demand and NOW accounts $188,748 264 0.56
Savings deposits 89,683 34 0.15
Money market accounts 71,934 138 0.77
Certificate accounts 666,889 3,967 2.38
——- —– —-
Total deposits 1,017,254 4,403 1.73
Borrowings 157,195 1,400 3.56
——- —– —-
Total interest-bearing accounts 1,174,449 5,803 1.98
Non-interest bearing deposit accounts 114,816
Other liabilities 14,237
——
Total liabilities 1,303,502
Stockholders’ equity 134,185
——-
Total liabilities and stockholders’
equity $1,437,687
==========

Net earning assets $143,838
========

Net interest income $10,222
=======

Net interest rate spread 2.89%
====

Net yield on average interest-earning
assets 3.10%
====

Average interest-earning assets to
average interest-bearing liabilities 112.25%
======

Three
mos ended
12/31/2009
———-
Average Interest Average
Outstanding Earned/ Yield/
Balance Paid Rate
——- —- —-
(000) (000)
Interest-Earning Assets:
Interest -bearing deposits $31,203 $14 0.18%
Mortgage-backed securities:
Available-for-sale 101,110 990 3.92
Held-to-maturity 8,899 120 5.39
Investment securities:
Available-for-sale 26,190 323 4.93
Loans receivable 1,082,263 15,882 5.87
Stock in FHLB of Indianapolis 18,632 50 1.07
—— — —-
Total interest-earning assets (3) 1,268,297 17,379 5.48
Non-interest earning assets, net of
allowance
for loan losses and unrealized gain/
loss 125,854
Total assets $1,394,151
==========

Interest-Bearing Liabilities:
Demand and NOW accounts $159,242 172 0.43
Savings deposits 85,759 34 0.16
Money market accounts 49,826 120 0.96
Certificate accounts 640,102 4,570 2.86
——- —– —-
Total deposits 934,929 4,896 2.09
Borrowings 211,071 2,201 4.17
——- —– —-
Total interest-bearing accounts 1,146,000 7,097 2.48
Non-interest bearing deposit accounts 100,376
Other liabilities 16,410
——
Total liabilities 1,262,786
Stockholders’ equity 131,365
——-
Total liabilities and stockholders’
equity $1,394,151
==========

Net earning assets $122,297
========

Net interest income $10,282
=======

Net interest rate spread 3.00%
====

Net yield on average interest-earning
assets 3.24%
====

Average interest-earning assets to
average interest-bearing liabilities 110.67%
======

Three Three Three
Months Months Months
Ended Ended Ended
December September December
31, 30, 31,
Selected Financial Ratios and
Other Financial Data
(Unaudited): 2010 2010 2009
—————————– —- —- —-

Share and per share data:
Average common shares outstanding
Basic 6,885,427 6,877,481 6,853,643
Diluted 6,951,413 6,887,204 6,853,672
Per common share:
Basic earnings $0.20 $0.17 ($0.24)
Diluted earnings $0.20 $0.17 ($0.24)
Dividends $0.06 $0.06 $0.06

Dividend payout ratio 30.00% 35.29% -25.00%

Performance Ratios:
Return on average assets (ratio
of net
income to average total
assets)(1) 0.50% 0.45% -0.34%
Return on average tangible common
equity (ratio of net
income to average tangible common
equity)(1) 5.61% 4.77% -7.06%
Interest rate spread information:
Average during the period(1) 2.89% 3.04% 3.00%

Net interest margin(1)(2) 3.10% 3.23% 3.24%

Efficiency Ratio 71.19% 71.07% 98.48%

Ratio of average interest-
earning
assets to average interest-
bearing
liabilities 112.25% 110.65% 110.67%

Allowance for loan losses:
Balance beginning of period $16,480 $16,248 $16,620
Charge offs:
One- to four- family 1,125 1,109 979
Multi-family 0 15 0
Commercial real estate 568 702 169
Construction or development 0 0 0
Consumer loans 486 477 994
Commercial business loans 0 8 0
— — —
Sub-total 2,179 2,311 2,142

Recoveries:
One- to four- family 116 37 16
Multi-family 0 0 0
Commercial real estate 0 25 6
Construction or development 0 0 0
Consumer loans 180 256 264
Commercial business loans 0 0 0
— — —
Sub-total 296 318 286

Net charge offs 1,883 1,993 1,856
Additions charged to operations 1,775 2,225 1,650
—– —– —–
Balance end of period $16,372 $16,480 $16,414
======= ======= =======

Net loan charge-offs to average
loans (1) 0.74% 0.78% 0.69%

Twelve Twelve
Months Months
Ended Ended
December December
31, 31,
Selected Financial Ratios and Other Financial
Data (Unaudited): 2010 2009
——————————————— —- —-

Share and per share data:
Average common shares outstanding
Basic 6,873,508 6,840,659
Diluted 6,896,107 6,840,748
Per common share:
Basic earnings $0.69 $0.20
Diluted earnings $0.69 $0.20
Dividends $0.24 $0.42

Dividend payout ratio 34.78% 210.00%

Performance Ratios:
Return on average assets (ratio of net
income to average total assets)(1) 0.45% 0.23%
Return on average tangible common equity (ratio
of net
income to average tangible common equity)(1) 4.96% 1.49%
Interest rate spread information:
Average during the period(1) 2.97% 2.98%

Net interest margin(1)(2) 3.19% 3.22%

Efficiency Ratio 72.86% 81.84%

Ratio of average interest-earning
assets to average interest-bearing
liabilities 111.25% 110.22%

Allowance for loan losses:
Balance beginning of period $16,414 $15,107
Charge offs:
One- to four- family 2,957 1,728
Multi-family 247 0
Commercial real estate 2,306 1,291
Construction or development 0 0
Consumer loans 2,774 3,154
Commercial business loans 8 83
— —
Sub-total 8,292 6,256

Recoveries:
One- to four- family 298 110
Multi-family 0 0
Commercial real estate 93 184
Construction or development 0 0
Consumer loans 809 767
Commercial business loans 0 2
— —
Sub-total 1,200 1,063

Net charge offs 7,092 5,193
Additions charged to operations 7,050 6,500
—– —–
Balance end of period $16,372 $16,414
======= =======

Net loan charge-offs to average loans (1) 0.69% 0.47%

December September December
31, 30, 31,
2010 2010 2009
—- —- —-

Total shares outstanding 6,984,754 6,984,754 6,984,754
Tangible book value per share $13.49 $13.80 $13.09
Tangible common equity to tangible
assets 6.92% 6.91% 6.77%

Nonperforming assets (000′s)
Non-accrual loans
One- to four- family $14,426 $14,308 $14,617
Commercial real estate 10,977 11,635 8,986
Consumer loans 3,713 2,932 3,610
Commercial business loans 1,067 1,317 1,873
—– —– —–
Total non-accrual loans 30,183 30,192 29,086
Accruing loans past due 90 days or
more 1,546 366 1,934
Restructured loans 7,100 1,027 1,563
—– —– —–
Total nonperforming loans 38,829 31,585 32,583
Real estate owned 5,030 5,686 5,424
Other repossessed assets 1,097 1,142 1,927
Nonperforming securities 0 0 100
— — —
Total nonperforming assets $44,956 $38,413 $40,034

Asset Quality Ratios:
Non-performing assets to total
assets 3.20% 2.67% 2.86%
Non-performing loans to total
loans 3.90% 3.11% 3.03%
Allowance for loan losses to non-
performing loans 42.16% 52.18% 50.38%
Allowance for loan losses to loans
receivable 1.64% 1.62% 1.53%

(1) Ratios for the three months 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.