MutualFirst Announces Second Quarter 2011 Earnings

MUNCIE, Ind., July 13, 2011 /PRNewswire/ — MutualFirst Financial, Inc. (NASDAQ:
MFSF), the holding company of MutualBank (the “Bank”), announced today net
income to common shareholders for the second quarter ended June 30, 2011 of $1.2
million, or $.18 for basic and diluted earnings per common share. This compared
to net income available for common shareholder for the same period in 2010 of
$1.3 million, or $.19 for basic and diluted earnings per common share.
Annualized return on assets was .46% and return on average tangible common
equity was 5.14% for the second quarter of 2011 compared to .48% and 5.66%
respectively, for the same period of last year.

Net income available for common shareholders for the six months ended June 30,
2011 was $85,000, or $.01 for basic and diluted earnings per common share
compared to net income available to common shareholders of $2.2 million, or $.32
for basic and diluted earnings per common share for the six months ended June
30, 2010. Annualized return on assets was .14% and return on average tangible
common equity was .18% for the first half of 2011 compared to .42% and 4.77%
respectively, for the same period of last year.

Other financial highlights for the second quarter ended June 30, 2011 included:

— Gross loans stabilized in the second quarter after declining $29.6
million in the first quarter of 2011.
— Deposits decreased $12.9 million in the second quarter as higher rate
certificate of deposit balances declined $19.2 million.
— Tangible common equity increased to 7.19% in the second quarter of 2011.
— Allowance for loan losses to non-performing loans was 52.98% as of June
30, 2011 compared to 52.97% as of March 31, 2011. Allowance for loan
losses to loans receivable was 1.65% as of June 30, 2011 compared to
1.64% as of March 31, 2011.
— Net charge offs on an annualized basis were .64% in the second quarter
2011 compared to 1.94% in the first quarter of 2011.
— Net interest margin was 3.19% for the second quarter 2011 compared to
3.14% in the first quarter 2011.
— Non-interest income for the quarter ended June 30, 2011 increased
$453,000 compared to the first quarter 2011.
— Non-interest expense for the second quarter 2011 decreased $413,000
compared to the first quarter 2011.

“We were encouraged by the positive signs in the second quarter including the
positive earnings, increasing net interest margin, increasing non-interest
income and decreasing non-interest expense. The stabilization in the loan
portfolio balances and credit metrics was another positive sign in the quarter,”
said David W. Heeter, President and CEO.

Balance Sheet

Assets increased $23.0 million as of June 30, 2011 compared to December 31,
2010, primarily due to the increase in investments securities by $59.3 million
which were partially offset by decreases in gross loans held for investment and
sale of $39.7 million. The increase in investment securities was in shorter term
government agency mortgage backed securities and was primarily funded by
proceeds from loan payments and increased deposits. In the second quarter of
2011, gross loans held for investment and sale stabilized decreasing $474,000
compared to a decrease of $39.2 million in the first quarter of 2011. Heeter
commented, “The stabilization in our loan portfolio was a favorable indicator
that loan production has improved compared to the first quarter of this year.”

Deposits increased by $40.0 million as the Bank has seen increased activity in
all of its markets for core deposit relationships in the first half of 2011. The
increase in deposits has been primarily in core transactional accounts which
increased $46.7 million while certificates of deposit decreased $6.7 million in
the first half of 2011. Core transactional deposits increased to 43% of the
Bank’s total deposits as of June 30, 2011 compared to 40% as of December 31,
2010. The increase in deposits allowed the Bank to retire higher rate maturing
debt, mainly FHLB advances, of $21.9 million in the first half of 2011.

Allowance for loan losses decreased by $415,000, to $16.0 million as of June 30,
2011 compared to December 31, 2010, but increased $160,000 in the second quarter
of 2011. Net charge offs in the second quarter were $1.5 million, or .64% of
total loans on an annualized basis, compared to $4.8 million, or 1.94% of total
loans on an annualized basis in the first quarter of 2011. The allowance for
loan losses to non-performing loans as of June 30, 2011 was 52.98% compared to
52.97% as of March 31, 2011 and 42.16% as of December 31, 2010. The allowance
for loan losses to total loans as of June 30, 2011 was 1.65%, an increase from
1.64% as of March 31, 2011 and December 31, 2010. Heeter commented, “We believe
that our allowance for loan losses adequately reflects the risk in our portfolio
and the current risk in the economy as we move forward.”

Stockholders’ equity was $136.0 million at June 30, 2011, an increase of $4.9
from December 31, 2010. The increase was due primarily to unrealized gains on
securities of $5.4 million and net income of $987,000. This increase was
partially offset by dividend payments of $838,000 to common shareholders and
$810,000 to preferred shareholders. The Company’s tangible book value per share
as of June 30, 2011 increased to $14.27 compared to $13.49 as of December 31,
2010 and tangible common equity ratio was 7.19% as of June 30, 2011 compared to
6.93% as of December 31, 2010. The Bank’s risk-based capital ratio was well in
excess of “well-capitalized” levels as defined by all regulatory standards as of
June 30, 2011.

Income Statement

Net interest income before the provision for loan losses decreased $324,000 for
the quarter ended June 30, 2011 compared to the same period in 2010. The
decrease was a result of the decline in the net interest margin from 3.23% in
the second quarter of 2010 to 3.19% in the second quarter of 2011 and a decline
in average earning assets of $22.9 million. On a linked quarter basis, net
interest income before the provision for loan losses increased $239,000 as net
interest margin increased by 5 basis points and average earning assets increased
by $9.6 million.

Net interest income before the provision for loan losses decreased $497,000 for
the first half of 2011 compared to the same period in 2010. The decrease was a
result of the decline in the net interest margin from 3.20% in the first half of
2010 to 3.16% in the first half of 2011 and the decline in average earning
assets of $13.5 million.

The provision for loan losses for the second quarter of 2011 increased to $1.7
million compared to $1.5 million during last year’s comparable period. The
increase was attributable to increased non-performing loans and non-performing
assets when compared to June 30, 2010. Non-performing loans to total loans at
June 30, 2011 was 3.12% compared to 2.49% at June 30, 2010. Non-performing
assets to total assets were 2.67% at June 30, 2011 compared to 2.31% at June 30,
2010. Net charge offs for the second quarter of 2011 were $1.5 million, or .64%
of loans on an annualized basis compared to $1.9 million, or .74% of loans on an
annualized basis in the second quarter of 2010.

The provision for loan losses for the first half of 2011 increased to $5.9
million compared to $3.1 million during last year’s comparable period. The
increase was primarily due to net charge offs of $4.8 million in the first
quarter of 2011. The charge offs were for previously identified problem loans
that were mostly collateralized by real estate. Non-performing loans to total
loans at June 30, 2011 were 3.12% compared to 3.90% at December 31, 2010. This
decrease in non-performing loans was in all segments of our portfolio.
Non-performing assets to total assets were 2.67% at June 30, 2011 compared to
3.20% at December 31, 2010.

Non-interest income for the second quarter of 2011 was $3.4 million a decrease
of $19,000 compared to the second quarter of 2010. Regulatory changes on
overdrafts in July of 2010 resulted in the Company’s reduced service charges on
deposit accounts by $161,000 in the second quarter of 2011 compared to the
second quarter of 2010. Gain on loan sales increased $140,000 primarily due to a
recovery of $205,000 on previously written down mortgage servicing rights. On a
linked quarter basis, non-interest income increased $453,000, primarily in
service charges on deposit accounts of $122,000 and the above mentioned increase
in gain on loan sales.

Non-interest income for the first half of 2011 was $6.3 million, a decrease of
$238,000 compared to the first half of 2010. Service charges on deposit accounts
decreased primarily due to regulatory changes by $296,000, gain on sale of
investments decreased by $245,000 primarily due to fewer sales of investment
securities and gain on loan sales decreased by $123,000 primarily due to
decreased loan production. These decreases were offset by the stabilization of
values for trust preferred securities which resulted in a $535,000 decrease in
other than temporary impairment.

Non-interest expense decreased $422,000 when comparing the second quarter of
2011 with that of 2010. Repossessed asset expenses decreased by $246,000, FDIC
expense related to deposit insurance decreased $121,000 due to the new FDIC fee
structure, and software maintenance expense decreased $90,000 in the second
quarter of 2011 compared to the same period in 2010. These decreases were
partially offset by increased professional fees of $133,000.

Non-interest expense decreased $280,000 when comparing the first half of 2011
with that of 2010. Repossessed asset expenses decreased by $278,000, software
maintenance expense decreased by $169,000 and FDIC expense related to deposit
insurance decreased $59,000 in the first half of 2011 compared to the same
period in 2010. These decreases were partially offset by increased salary and
benefit expense of $195,000 and increased professional fees of $151,000.

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

MUTUALFIRST FINANCIAL INC.
————————–

December
June 30, March 31, 31,
Balance Sheet (Unaudited): 2011 2011 2010
————————– —- —- —-
(000) (000) (000)
Assets
Cash and cash equivalents $34,287 $78,711 $26,821
Investment securities – AFS 304,463 270,081 245,165
Loans held for sale 654 925 10,483
Loans, gross 965,440 965,643 995,273
Allowance for loan loss (15,957) (15,797) (16,372)
——- ——- ——-
Net loans 949,483 949,846 978,901
Premise and equipment 32,305 32,584 32,966
FHLB of Indianapolis stock 14,391 16,682 16,682
Investment in limited
partnerships 3,368 3,496 3,624
Cash surrender value of life
insurance 46,328 45,916 45,566
Prepaid FDIC premium 3,427 3,730 4,208
Core deposit and other
intangibles 3,919 4,224 4,533
Deferred income tax benefit 16,616 19,101 20,030
Other assets 20,691 21,922 17,923
Total assets 1,429,932 1,447,218 1,406,902
========= ========= =========

Liabilities and Stockholders’
Equity
Deposits 1,161,570 1,174,459 1,121,569
FHLB advances 106,656 114,769 128,538
Other borrowings 12,794 12,981 13,167
Other liabilities 12,890 14,037 12,488
Stockholders’ equity 136,022 130,972 131,140
Total liabilities and
stockholders’ equity 1,429,932 1,447,218 1,406,902
========= ========= =========

Three Three Three
Months Months Months
Ended Ended Ended
June 30, March 31, June 30,
Income Statement (Unaudited): 2011 2011 2010
—————————– —- —- —-
(000) (000) (000)

Total interest income $15,807 $15,683 $17,403
Total interest expense 5,253 5,368 6,525
—– —– —–

Net interest income 10,554 10,315 10,878
Provision for loan losses 1,700 4,200 1,525
—– —– —–
Net interest income after
provision
for loan losses 8,854 6,115 9,353
—– —– —–

Non-interest income
——————-
Fees and service charges 1,726 1,604 1,887
Net gain (loss) on sale of
investments 1 74 35
Other than temporary impairment
of securities 0 (193) (151)
Equity in losses of limited
partnerships (116) (34) (128)
Commissions 1,005 951 1,082
Net gain (loss) on loan sales 349 92 209
Net servicing fees 18 27 31
Increase in cash surrender
value of life insurance 374 351 372
Other income 17 49 56
— — —
Total non-interest income 3,374 2,921 3,393
—– —– —–

Non-interest expense
——————–
Salaries and benefits 5,340 5,523 5,332
Occupancy and equipment 1,390 1,463 1,372
Data processing fees 379 401 387
Professional fees 376 360 243
Marketing 300 300 306
Deposit insurance 332 508 453
Software subscriptions and
maintenance 313 318 403
Intangible amortization 306 309 353
Repossessed assets expense 368 435 614
Other expenses 958 858 1,021
— — —–
Total non-interest expense 10,062 10,475 10,484
—— —— ——

Income before taxes 2,166 (1,439) 2,262
Income tax provision (benefit) 485 (746) 487
Net income 1,681 (693) 1,775
Preferred stock dividends and
amortization 451 451 451
Net income available to common
shareholders $1,230 ($1,144) $1,324
====== ======= ======

Six Six
Months Months
Ended Ended
June 30, June 30,
Income Statement (Unaudited): 2011 2010
—————————– —- —-
(000) (000)

Total interest income $31,490 $34,647
Total interest expense 10,621 13,281
—— ——

Net interest income 20,869 21,366
Provision for loan losses 5,900 3,050
—– —–
Net interest income after
provision
for loan losses 14,969 18,316
—— ——

Non-interest income
——————-
Fees and service charges 3,331 3,627
Net gain (loss) on sale of
investments 75 320
Other than temporary impairment
of securities (193) (728)
Equity in losses of limited
partnerships (149) (255)
Commissions 1,956 2,024
Net gain (loss) on loan sales 441 564
Net servicing fees 44 68
Increase in cash surrender
value of life insurance 724 755
Other income 67 159
— —
Total non-interest income 6,296 6,534
—– —–

Non-interest expense
——————–
Salaries and benefits 10,863 10,668
Occupancy and equipment 2,852 2,797
Data processing fees 780 798
Professional fees 736 585
Marketing 600 604
Deposit insurance 840 899
Software subscriptions and
maintenance 631 800
Intangible amortization 614 706
Repossessed assets expense 803 1,081
Other expenses 1,820 1,881
—– —–
Total non-interest expense 20,539 20,819
—— ——

Income before taxes 726 4,031
Income tax provision (benefit) (261) 913
—- —
Net income 987 3,118
Preferred stock dividends and
amortization 902 902
Net income available to common
shareholders $85 $2,216
=== ======

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

Three
mos ended
6/30/2011
———
Average Interest Average Average
Outstanding Earned/ Yield/ Outstanding
Balance Paid Rate Balance
——- —- —- ——-
(000) (000) (000)
Interest-Earning Assets:
Interest -bearing deposits $49,943 $30 0.24% $88,121
Mortgage-backed securities:
Available-for-sale 273,964 2,108 3.08 175,556
Held-to-maturity 0 0 – 7,481
Investment securities:
Available-for-sale 19,801 151 3.05 18,346
Loans receivable 964,780 13,415 5.56 1,039,443
Stock in FHLB of Indianapolis 16,148 103 2.55 18,632
—— — —- ——
Total interest-earning
assets (3) 1,324,636 15,807 4.77 1,347,579
Non-interest earning assets,
net of allowance
for loan losses and
unrealized gain/loss 121,458 131,466
Total assets $1,446,094 $1,479,045
========== ==========

Interest-Bearing Liabilities:
Demand and NOW accounts $229,755 323 0.56 $186,499
Savings deposits 97,190 37 0.15 91,545
Money market accounts 64,724 121 0.75 66,621
Certificate accounts 665,849 3,718 2.23 669,630
——- —– —- ——-
Total deposits 1,057,518 4,199 1.59 1,014,295
Borrowings 122,978 1,054 3.43 210,792
——- —– —- ——-
Total interest-bearing
accounts 1,180,496 5,253 1.78 1,225,087
Non-interest bearing deposit
accounts 120,803 107,805
Other liabilities 12,491 14,823
—— ——
Total liabilities 1,313,790 1,347,715
Stockholders’ equity 132,304 131,330
——- ——-
Total liabilities and
stockholders’ equity $1,446,094 $1,479,045
========== ==========

Net earning assets $144,140 $122,492
======== ========

Net interest income $10,554
=======

Net interest rate spread 2.99%
====

Net yield on average
interest-earning assets 3.19%
====

Average interest-earning
assets to
average interest-bearing
liabilities 112.21%
======

Three
mos ended
6/30/2010
———
Interest Average
Earned/ Yield/
Paid Rate
—- —-
(000)
Interest-Earning Assets:
Interest -bearing deposits $56 0.25%
Mortgage-backed securities:
Available-for-sale 1,721 3.92
Held-to-maturity 131 7.00
Investment securities:
Available-for-sale 161 3.51
Loans receivable 15,242 5.87
Stock in FHLB of Indianapolis 92 1.98
— —-
Total interest-earning
assets (3) 17,403 5.17
Non-interest earning assets,
net of allowance
for loan losses and
unrealized gain/loss
Total assets

Interest-Bearing Liabilities:
Demand and NOW accounts 257 0.55
Savings deposits 36 0.16
Money market accounts 156 0.94
Certificate accounts 4,174 2.49
—– —-
Total deposits 4,623 1.82
Borrowings 1,902 3.61
—– —-
Total interest-bearing
accounts 6,525 2.13
Non-interest bearing deposit
accounts
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and
stockholders’ equity

Net earning assets

Net interest income $10,878
=======

Net interest rate spread 3.04%
====

Net yield on average
interest-earning assets 3.23%
====

Average interest-earning
assets to
average interest-bearing
liabilities 110.00%
======

Three Three Three
Months Months Months
Ended Ended Ended
June 30, March 31, June 30,
Selected Financial Ratios and
Other Financial Data (Unaudited): 2011 2011 2010
——————————— —- —- —-

Share and per share data:
Average common shares outstanding
Basic 6,903,151 6,893,695 6,869,535
Diluted 7,005,882 7,044,414 6,881,672
Per common share:
Basic earnings $0.18 ($0.17) $0.19
Diluted earnings $0.18 ($0.17) $0.19
Dividends $0.06 $0.06 $0.06

Dividend payout ratio 33.33% -35.29% 31.58%

Performance Ratios:
Return on average assets (ratio of
net
income to average total assets)(1) 0.46% -0.19% 0.48%
Return on average tangible common
equity (ratio of net
income to average tangible common
equity)(1) 5.14% -4.86% 5.66%
Interest rate spread information:
Average during the period(1) 2.99% 2.93% 3.04%

Net interest margin(1)(2) 3.19% 3.14% 3.23%

Efficiency Ratio 72.24% 79.14% 73.46%

Ratio of average interest-earning
assets to average interest-
bearing
liabilities 112.32% 112.59% 110.00%

Allowance for loan losses:
Balance beginning of period $15,797 $16,372 $16,635
Charge offs:
One- to four- family 820 1,371 258
Multi-family 0 0 232
Commercial real estate 292 3,273 692
Construction or development 0 0 0
Consumer loans 652 428 917
Commercial business loans 0 0 0
— — —
Sub-total 1,764 5,072 2,099

Recoveries:
One- to four- family 59 44 61
Multi-family 0 0 0
Commercial real estate 1 0 0
Construction or development 0 0 0
Consumer loans 164 253 126
Commercial business loans 0 0 0
— — —
Sub-total 224 297 187

Net charge offs 1,540 4,775 1,912
Additions charged to operations 1,700 4,200 1,525
—– —– —–
Balance end of period $15,957 $15,797 $16,248
======= ======= =======

Net loan charge-offs to average
loans (1) 0.64% 1.94% 0.74%

Six Six
Months Months
Ended Ended
June 30, June 30,
Selected Financial Ratios and Other
Financial Data (Unaudited): 2011 2010
———————————– —- —-

Share and per share data:
Average common shares outstanding
Basic 6,898,691 6,865,562
Diluted 7,025,416 6,872,905
Per common share:
Basic earnings $0.01 $0.32
Diluted earnings $0.01 $0.32
Dividends $0.12 $0.12

Dividend payout ratio 1200.00% 37.50%

Performance Ratios:
Return on average assets (ratio of net
income to average total assets)(1) 0.14% 0.42%
Return on average tangible common equity
(ratio of net
income to average tangible common
equity)(1) 0.18% 4.77%
Interest rate spread information:
Average during the period(1) 2.96% 3.02%

Net interest margin(1)(2) 3.16% 3.20%

Efficiency Ratio 75.61% 74.62%

Ratio of average interest-earning
assets to average interest-bearing
liabilities 112.45% 109.42%

Allowance for loan losses:
Balance beginning of period $16,372 $16,414
Charge offs:
One- to four- family 2,191 723
Multi-family 0 232
Commercial real estate 3,565 1,036
Construction or development 0 0
Consumer loans 1,080 1,812
Commercial business loans 0 0
— —
Sub-total 6,836 3,803

Recoveries:
One- to four- family 103 146
Multi-family 0 0
Commercial real estate 1 68
Construction or development 0 0
Consumer loans 417 373
Commercial business loans 0 0
— —
Sub-total 521 587

Net charge offs 6,315 3,216
Additions charged to operations 5,900 3,050
—– —–
Balance end of period $15,957 $16,248
======= =======

Net loan charge-offs to average loans
(1) 1.30% 0.61%

June 30, March 31, June 30,
2011 2011 2010
—- —- —-

Total shares outstanding 6,986,586 6,985,087 6,984,754
Tangible book value per share $14.27 $13.51 $13.86
Tangible common equity to tangible
assets 7.19% 6.72% 6.94%

Nonperforming assets (000′s)
Non-accrual loans
One- to four- family $9,520 $10,768 $13,501
Commercial real estate 10,435 10,333 7,464
Consumer loans 2,553 2,858 2,013
Commercial business loans 1,144 1,032 592
—– —– —
Total non-accrual loans 23,652 24,991 23,570
Accruing loans past due 90 days or
more 1,038 0 876
Restructured loans 5,431 4,829 1,224
—– —– —–
Total nonperforming loans 30,121 29,820 25,670
Real estate owned 7,151 8,096 6,171
Other repossessed assets 937 1,070 1,318
Nonperforming securities 0 0 100
— — —
Total nonperforming assets $38,209 $38,986 $33,259

Asset Quality Ratios:
Non-performing assets to total
assets 2.67% 2.69% 2.31%
Non-performing loans to total
loans 3.12% 3.09% 2.49%
Allowance for loan losses to non-
performing loans 52.98% 52.97% 63.30%
Allowance for loan losses to loans
receivable 1.65% 1.64% 1.58%

(1) Ratios for the three and six month periods 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.