MutualFirst Announces Increased Earnings Per Share

MUNCIE, Ind., May 6, 2014 /PRNewswire/ — MutualFirst Financial, Inc.
(NASDAQ: MFSF), the holding company of MutualBank (the “Bank”), announced today
net income available to common shareholders for the first quarter ended March
31, 2014 increased to $2.0 million, or $.28 for basic and $.27 for diluted
earnings per common share. This compared to net income available to common
shareholders during the same period in 2013 of $1.6 million, or $.23 for basic
and $.22 for diluted earnings per common share. Annualized return on assets was
57% and return on average tangible common equity was 6.98% for the first
quarter of 2014 compared to .56% and 5.95% respectively, for the same period of
last year.

“We are pleased with the continued improvement in earnings,” said David W.
Heeter, President and CEO.

Financial highlights for the first quarter ended March 31, 2014 included:

— Core transactional deposit accounts increased $16.3 million.
— Allowance for loan losses to non-performing loans as of March 31, 2014
was 170.28% compared to 156.15% as of December 31, 2013. Allowance for
loan losses to loans receivable was unchanged at 1.37% as of March 31,
2014 compared to December 31, 2013.
— Net charge offs on an annualized basis were 0.16% in the first quarter
of 2014 compared to 0.41% in the same period in 2013.
— Net interest margin increased to 3.26% for the first quarter of 2014
compared to 3.07% for the first quarter of 2013.
— Provision for loan losses decreased $600,000 in the first quarter of
2014 compared to the first quarter of 2013.
— Non-interest income for the quarter ended March 31, 2014 decreased
$764,000 compared to the first quarter of 2013 primarily due to a
reduction in gains on sale of loans and investments.
— Non-interest expense for the first quarter of 2014 increased $334,000
over the first quarter of 2013. The increase is primarily due to
increased salary and benefit expenses.
Balance Sheet

Assets decreased $2.9 million as of March 31, 2014 compared to December 31,
2013, primarily due to the decrease in gross loans by $1.5 million. The decrease
in the gross loan portfolio was primarily due to a $5.1 million decline in the
consumer residential loan portfolio as a majority of current mortgage production
was sold into the secondary market for interest rate risk mitigation. The
commercial loan portfolio increased $1.9 million and the non-real estate
consumer loan portfolio increased $1.7 million. The $3.6 million increase in our
commercial and non-real estate consumer loan portfolios in the first quarter of
2014 compared favorably to a decline of $3.5 million in the first quarter of
2013.

Deposits decreased by $8.1 million as the Bank allowed wholesale deposits to run
off, which was partly responsible for a $24.4 million decline in certificates of
deposit. This decrease was partially offset by increases in core transactional
accounts, which increased $16.3 million in the first quarter of 2014. Core
transactional deposits increased to 60% of the Bank’s total deposits as of March
31, 2014 compared to 58% as of December 31, 2013 and 53% as of March 31, 2013.

The allowance for loan losses decreased by $42,000 to $13.4 million as of March
31, 2014 as compared to December 31, 2013. Net charge offs for the first quarter
of 2014 were $392,000, or 0.16% of loans on an annualized basis, compared to
$997,000, or 0.41% of loans on an annualized basis, for the first quarter of
2013. The allowance for loan losses to non-performing loans as of March 31, 2014
increased to 170.3% compared to 156.2% as of December 31, 2013. The allowance
for loan losses to total loans as of March 31, 2014 was 1.37%, the same as of
December 31, 2013. “We continue to be pleased with the improvement in our asset
quality and we believe that our current allowance for loan losses adequately
reflects the risk in our portfolio and the current risk in the economy,” Heeter
added.

Stockholders’ equity was $115.3 million at March 31, 2014, an increase of $3.7
million from December 31, 2013. The increase was a result of net income of $2.0
million and an increase in unrealized gains on the investment portfolio of $2.1
million. This increase was partially offset by dividend payments of $427,000 to
common shareholders. The Company’s tangible book value per share as of March 31,
2014 increased to $15.99 compared to $15.46 as of December 31, 2013 and tangible
common equity ratio was 8.21% as of March 31, 2014 compared to 7.92% as of
December 31, 2013. Stockholders’ equity declined $24.9 million compared to March
31, 2013 as the Company redeemed all $28.9 million of the preferred shares
purchased by the United States Treasury in the Small Business Lending Fund in
the second and fourth quarters of 2013. The Company’s and the Bank’s risk-based
capital ratio were well in excess of “well-capitalized” levels as defined by all
regulatory standards as of March 31, 2014.

Income Statement

Net interest income before the provision for loan losses increased $440,000 for
the quarter ended March 31, 2014 compared to the same period in 2013. The
increase was a result of an increase in the net interest margin from 3.07% in
the first quarter of 2013 to 3.26% in the first quarter of 2014, which was
partially offset by a decline in average earning assets of $23.9 million. On a
linked quarter basis, net interest income before the provision for loan losses
increased $214,000 as net interest margin increased 9 basis points. A decline in
average earning assets of $11.9 million partially offset the increase of the net
interest margin.

Heeter commented, “The increase in net interest margin is a result of continued
deposit repricing, along with our strategic objective to change our balance
sheet mix. We have been successful in changing our liability mix and continue to
work to change our earning asset mix.”

The provision for loan losses for the first quarter of 2014 decreased to
$350,000 compared to $950,000 during last year’s comparable period. The decrease
was due to management’s ongoing evaluation of the adequacy of the allowance for
loan losses and was impacted by a decrease in net charge offs to $392,000 for
the first quarter of 2014 compared to net charge offs of $997,000 in the first
quarter of 2013. Non-performing loans to total loans at March 31, 2014 were
0.80% compared to 0.88% at December 31, 2013. Non-performing assets to total
assets were 1.12% at March 31, 2014 compared to 1.22% at December 31, 2013.

Non-interest income for the first quarter of 2014 was $2.9 million a decrease of
$764,000 compared to the first quarter of 2013. Non-interest income decreased as
gains on sales of loans declined by $332,000 as sold loans declined by
approximately $21 million in the first quarter of 2014 compared to the first
quarter of 2013. Service fee income on deposit accounts decreased by $230,000
primarily due to an annual incentive payment received for card services in 2013
which was not repeated in 2014. Typically this incentive payment is received in
the fourth quarter. Gain on sale of investments declined in the first quarter of
2014 compared to the first quarter of 2013 as fewer opportunities exist within
the investment portfolio for gains as market rates increased in late 2013. These
declines were partially offset by an increase in commission income by $100,000
when comparing the first quarter of 2014 to the first quarter of 2013.
Commission income comes from trust, wealth management, and brokerage business
lines. On a linked quarter basis, non-interest income declined $308,000 as a
result of a decline in service fee income primarily due to seasonality and the
reason described above. Gain on sale of loans and net servicing gains also
declined as mortgage production slowed which resulted in fewer loans were sold
and a mortgage servicing rights recovery in the fourth quarter of 2013 was not
repeated in the first quarter of 2014.

Non-interest expense increased $334,000 when comparing the first quarter of 2014
with that of 2013. This increase was a result of an increase in salaries and
benefits of $322,000 and professional fees of $102,000. The increase in salaries
and benefits was a result of annual salary increases and a reduction of $105,000
on compensation deferred due to fewer loan originations when compared to the
first quarter of 2013. The increase in professional fees was primarily a result
of a revenue enhancement consulting engagement. On a linked quarter basis,
non-interest expense decreased $425,000 primarily due to a reduction in salaries
and benefits primarily due to year-end incentive accruals, a reduction in
repossessed asset expenses, and a reduction in other operating expenses.

Heeter concluded, “We are pleased with the results and increasing shareholder
value is our top priority. We continue to seek ways to become more profitable
and increase our franchise value.”

MutualFirst Financial, Inc. and MutualBank, an Indiana-based financial
institution, has thirty 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 commercial
lending, 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.

MUTUALFIRST Financial,
Inc.
———————-

March 31, December 31, March 31,

Balance
Sheet
(Unaudited): 2014 2013 2013
———— —- —- —-

(000) (000) (000)

Assets

Cash
and
cash
equivalents $22,122 $25,285 $34,396

Investment
securities

AFS 269,106 264,348 284,271

Loans
held
for
sale 1,542 1,888 6,765

Loans,
gross 977,849 979,378 971,867

Allowance
for
loan
loss (13,370) (13,412) (15,991)
——- ——- ——-

Net
loans 964,479 965,966 955,876

Premise
and
equipment,
net 31,419 31,471 31,878

FHLB
of
Indianapolis
stock 14,391 14,391 14,391

Investment
in
limited
partnerships 1,965 2,092 2,475

Cash
value
of
life
insurance 50,110 49,843 48,727

Prepaid
FDIC
premium 0 0 1,344

Core
deposit
and
other
intangibles 1,461 1,629 2,200

Deferred
tax
asset 15,468 17,002 16,413

Foreclosed
real
estate 7,647 8,433 6,436

Other
assets 8,832 9,057 8,528

Total
assets $1,388,542 1,391,405 $1,413,700
========== ========= ==========

Liabilities
and
Stockholders’
Equity

Deposits $1,104,961 1,113,084 $1,167,727

FHLB
advances 144,128 142,928 81,525

Other
borrowings 10,711 10,890 11,427

Other
liabilities 13,431 12,861 12,842

Stockholders’
equity 115,311 111,642 140,179

Total
liabilities
and
stockholders’
equity $1,388,542 1,391,405 $1,413,700
========== ========= ==========

Three Months Three Months Three Months

Ended Ended Ended

March 31, December 31, March 31,

Income
Statement
(Unaudited): 2014 2013 2013
———— —- —- —-

(000) (000) (000)

Total
interest
income $12,738 $12,848 $12,901

Total
interest
expense 2,319 2,643 2,922
—– —– —–

Net
interest
income 10,419 10,205 9,979

Provision
(credit)
for
loan
losses 350 (950) 950
— —- —

Net
interest
income
after
provision

for
loan
losses 10,069 11,155 9,029
—— —— —–

Non-
interest
income
——–

Service
fee
income 1,341 1,607 1,571

Net
realized
gain
on
sales
of
AFS
securities 150 0 339

Equity
in
losses
of
limited
partnerships (93) (116) (126)

Commissions 1,082 1,157 982

Net
gain
on
sale
of
loans 104 198 436

Net
servicing
fees
(expenses) (24) 86 (28)

Increase
in
cash
value
of
life
insurance 267 454 317

Net
gain assets
(loss)
on
sale
of
other
real
estate
and
repossessed (62) (267) 19

Other
income 108 62 127
— — —

Total
non-
interest
income 2,873 3,181 3,637
—– —– —–

Non-
interest
expense
——–

Salaries
and
employee
benefits 5,873 6,128 5,551

Occupancy
and
equipment 1,128 1,076 1,160

ATM
and
debit
card
expense 290 325 241

Data
processing
fees 406 349 384

Professional
fees 438 421 336

Advertising
and
promotion 301 368 270

Deposit
insurance 270 254 324

Software
subscriptions
and
maintenance 416 382 369

Intangible
amortization 168 174 211

Other
real
estate
and
repossessed
assets 135 244 173

Other
expenses 822 951 894
— — —

Total
non-
interest
expense 10,247 10,672 9,913
—— —— —–

Income

before
taxes 2,695 3,664 2,753

Income
tax
provision 732 1,023 777

Net
income 1,963 2,641 1,976

Preferred
stock
dividends
and
amortization – 346 362

Net
income
available
to
common
shareholders $1,963 $2,295 $1,614
====== ====== ======

Pre-
tax
pre-
provision
earnings
(1) $3,045 $2,368 $3,341
—— —— ——

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

Three Three

mos ended mos ended

3/31/2014 3/31/2013
——— ———

Average Interest Average Average Interest Average

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Balance Paid Rate Balance Paid Rate
——- —- —- ——- —- —-

(000) (000) (000) (000)

Interest-
Earning
Assets:

Interest
-bearing
deposits $20,711 $4 0.08% $23,801 $6 0.10%

Mortgage-
backed
securities:

Available-
for-sale 210,674 1,415 2.69 240,420 1,566 2.61

Investment
securities:

Available-
for-sale 54,179 352 2.60 38,617 179 1.85

Loans
receivable 977,656 10,767 4.41 984,325 11,023 4.48

Stock in
FHLB of
Indianapolis 14,391 200 5.56 14,391 127 3.53
—— — —- —— — —-

Total
interest-
earning
assets (2) 1,277,611 12,738 3.99 1,301,554 12,901 3.96

Non-
interest
earning
assets, net
of
allowance

for loan
losses and
unrealized
gain/loss 111,657 113,380

Total assets $1,389,268 $1,414,934
========== ==========

Interest-
Bearing
Liabilities:

Demand and
NOW
accounts $257,138 141 0.22 $257,763 169 0.26

Savings
deposits 123,173 3 0.01 114,040 3 0.01

Money market
accounts 121,194 74 0.24 96,187 61 0.25

Certificate
accounts 456,918 1,483 1.30 567,527 2,277 1.60
——- —– —- ——- —– —-

Total
deposits 958,423 1,701 0.71 1,035,517 2,510 0.97

Borrowings 153,025 618 1.62 88,887 412 1.85
——- — —- —— — —-

Total
interest-
bearing
accounts 1,111,448 2,319 0.83 1,124,404 2,922 1.04

Non-
interest
bearing
deposit
accounts 150,014 137,807

Other
liabilities 13,672 12,952
—— ——

Total
liabilities 1,275,134 1,275,163

Stockholders’
equity 114,134 139,771
——- ——-

Total
liabilities
and
stockholders’
equity $1,389,268 $1,414,934
========== ==========

Net earning
assets $166,163 $177,150
======== ========

Net interest
income $10,419 $9,979
======= ======

Net interest
rate spread 3.15% 2.93%
==== ====

Net yield on
average
interest-
earning
assets 3.26% 3.07%
==== ====

Average
interest-
earning
assets to

average
interest-
bearing
liabilities 114.95% 115.76%
====== ======

Three Months Three Months Three Months

Ended Ended Ended

March 31, December 31, March 31,

Selected Financial Ratios and Other Financial Data (Unaudited): 2014 2013 2013
————————————————————— —- —- —-

Share and per share data:

Average common shares outstanding

Basic 7,118,853 7,107,294 7,037,166

Diluted 7,353,044 7,314,436 7,195,092

Per common share:

Basic earnings $0.28 $0.32 $0.23

Diluted earnings $0.27 $0.31 $0.22

Dividends $0.06 $0.06 $0.06

Dividend payout ratio 22.22% 19.35% 27.27%

Performance Ratios:

Return on average assets (ratio of net

income to average total assets)(3) 0.57% 0.75% 0.56%

Return on average tangible common equity (ratio of net

income to average tangible common equity)(3) 6.98% 8.48% 5.95%

Interest rate spread information:

Average during the period(3) 3.15% 3.04% 2.93%

Net interest margin(3)(4) 3.26% 3.17% 3.07%

Efficiency Ratio 77.09% 79.74% 72.80%

Ratio of average interest-earning

assets to average interest-bearing

liabilities 114.95% 115.80% 115.76%

Allowance for loan losses:

Balance beginning of period $13,412 $14,454 $16,038

Charge offs:

Mortgage first lien 80 170 383

Mortgage – line of credits and junior liens 233 65 246

Commercial real estate 0 28 71

Consumer loans 160 111 234

Commercial business loans 0 4 166
— — —

Sub-total 473 378 1,100

Recoveries:

Mortgage first lien 4 217 23

Mortgage – line of credits and junior liens 3 1 9

Commercial real estate 13 0 0

Consumer loans 58 31 69

Commercial business loans 3 37 2
— — —

Sub-total 81 286 103

Net charge offs 392 92 997

Additions charged to operations 350 (950) 950
— —- —

Balance end of period $13,370 $13,412 $15,991
======= ======= =======

Net loan charge-offs to average loans (3) 0.16% 0.04% 0.41%

March 31, December 31, March 31,

2014 2013 2013
—- —- —-

Total shares
outstanding 7,122,249 7,117,179 7,081,327

Tangible book
value per
share $15.99 $15.46 $15.40

Tangible common
equity to
tangible
assets 8.21% 7.92% 7.72%

Nonperforming assets (000’s)

Non-accrual loans

Mortgage first
lien $3,743 $4,057 $11,003

Mortgage -line
of credits and
junior liens 325 421 1,556

Commercial real
estate 2,088 2,452 8,219

Consumer loans 333 361 1,339

Commercial
business loans 1,157 1,109 1,711
—– —– —–

Total non-
accrual loans 7,646 8,400 23,828

Accruing loans
past due 90
days or more 206 188 813
— — —

Total
nonperforming
loans 7,852 8,588 24,641

Real estate
owned 7,193 8,150 6,436

Other
repossessed
assets 454 283 681
— — —

Total
nonperforming
assets $15,499 $17,021 $31,758

Performing
restructured
loans (5) 4,510 10,016 6,420

Asset Quality Ratios:

Non-performing
assets to
total assets 1.12% 1.22% 2.25%

Non-performing
loans to total
loans 0.80% 0.88% 2.54%

Allowance for
loan losses to
non-
performing
loans 170.28% 156.15% 64.90%

Allowance for
loan losses to
loans
receivable 1.37% 1.37% 1.65%

(1) Pre-tax pre-provision income is calculated by taking net income available to
common shareholders and adding income tax provision and provision for loan losses.

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

(3) Ratios for the three month periods have been annualized.

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

(5) Performing restructured loans are excluded from non-performing ratios.
Restructured loans that are non-accrual are in the nonaccrual loan categories.

SOURCE MutualFirst Financial, Inc.

 

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