MutualFirst Announces Increased Second Quarter 2010 Earnings

MUNCIE, Ind., July 21 /PRNewswire-FirstCall/ -- MutualFirst Financial, Inc. (Nasdaq: MFSF), the holding company of MutualBank (the "Bank"), announced today that net income available for common shareholders for the second quarter ended June 30, 2010 was $1.3 million, or $.19 for basic and diluted earnings per common share.  This compared to net income available for common shareholders for the same period in 2009 of $864,000, or $.13 for basic and diluted earnings per common share. Annualized return on assets was .48% and return on average tangible common equity was 5.66% for the second quarter of 2010 compared to .25% and 3.82% respectively, for the same period of last year.

Net income available for common shareholders for the six months ended June 30, 2010 was $2.2 million, or $.32 for basic and diluted earnings per common share, consistent with the results from the same period in 2009.  Annualized return on assets was .42% and return on average tangible common equity was 4.77% for the first half of 2010 compared to .44% and 4.85% respectively, for the same period of last year.

Other financial highlights for the second quarter ended June 30, 2010 include:

• Non-performing assets declined $3.0 million during the second quarter of 2010, reducing the non-performing asset ratio from 2.44% at March 31, 2010 to 2.31% as of June 30, 2010.  Non-performing loans declined $1.7 million in the second quarter of 2010 reducing the non-performing loan ratio from 2.62% to 2.49%.
• Net charge offs annualized to average loans for the quarter were .74%, compared to .49% for quarter ended March 31, 2010 and .36% for quarter ended June 30, 2009.
• Allowance for loan losses to non-performing loans as of June 30, 2010 increased to 63.30% from 60.77% as of March 31, 2010 and allowance for loan losses to loans receivable decreased slightly to 1.58% as of June 30, 2010 from 1.59% as of March 31, 2010.
• Net interest income increased $566,000 for the quarter ended June 30, 2010 compared to the same quarter in 2009.  On a linked quarter basis, net interest income increased $390,000.
• Net interest margin increased to 3.23% as of June 30, 2010 compared to 3.18% as of March 31, 2010 and 3.21% as of June 30, 2009.
• Non-interest income for the quarter ended June 30, 2010 decreased $753,000 compared to the second quarter 2009 due to approximately $900,000 less gain on sale of loans and investments.  On a linked quarter basis, non-interest income increased $252,000.  
• Non-interest expense for the second quarter 2010 was $826,000 less than the second quarter 2009.  Excluding the one-time FDIC special assessment in the second quarter 2009 of $630,000, non-interest expense decreased $196,000.  On a linked quarter basis, non-interest expense increased $150,000 from the first quarter 2010.

"We continued to see improvement in the second quarter as we navigate through this current economic cycle," said David W. Heeter, President and CEO.  "As we see improvement, we believe that our ability to retire the preferred stock issued from the Capital Purchase Plan will be possible without diluting current shareholders.  Generating organic capital is a top priority."

Heeter added, "We continue to review ways to increase shareholder value.  We recently were an unsuccessful bidder for a FDIC assisted deal and we strongly believe this type of transaction would increase shareholder value.  We will continue to seek out such transactions that are geographically and financially feasible."

Assets totaled $1.4 billion at June 30, 2010, an increase from December 31, 2009 of $42.9 million, or 3.1%. Gross loans, excluding loans held for sale, decreased $45.7 million, or 4.2%.  Consumer loans decreased $18.0 million, or 6.9%, commercial loans decreased $18.4 million, or 5.5%, and residential mortgage loans held in the portfolio decreased $9.3 million, or 1.9%. Residential mortgage loans held for sale decreased $208,000 and mortgage loans sold during the first half of 2010 totaled $23.0 million compared to $94.9 million sold in the first half of last year. The decrease in consumer lending was a result of the Bank suspending origination of indirect boat and recreational vehicle lending at the beginning of 2010, which accounted for approximately 49% of the consumer outstanding balances at the beginning of 2010.  The decrease in commercial loans was a result of several commercial loans paying down, some of which were loans of concern for the Bank.  Mortgage loan balances continue to decline as the Bank has sold a majority of its fixed rate production.  Investment securities available for sale increased $77.5 million, or 59.2%, primarily due to the current liquidity available to the Bank.

Allowance for loan losses was $16.2 million at June 30, 2010, a decrease of $166,000 from December 31, 2009. Net charge offs for the quarter ended June 30, 2010 were $1.9 million, or .74% of average loans on an annualized basis compared to $992,000, or .36% of average loans for the comparable period in 2009.  Net charge offs for the six months ended June 30, 2010, $3.2 million, or .61% of average loans on an annualized basis compared to $2.0 million, or .35% of average loans for the comparable period in 2009.  Net charge offs increased as a larger amount of previously identified problem loans were settled in the quarter than in the same period in 2009.   On a linked quarter basis net charge offs increased from an annualized .49% of average loans for the quarter ended March 31, 2010 to .74% for the current quarter.  The allowance for loan losses as a percentage of non-performing loans and total loans was 63.30% and 1.58%, respectively at June 30, 2010 compared to 50.38% and 1.53%, respectively at December 31, 2009.

Total deposits were $1.1 billion at June 30, 2010 an increase of $64.0 million, or 6.1% from December 31, 2009. This increase was due to increases in certificates of deposit and savings deposits of $35.4 million and increases in demand and money market deposits of $28.6 million.  Total borrowings decreased $25.2 million to $186.8 million at June 30, 2010 from $212.1 million at December 31, 2009 as the Bank utilized excess liquidity to pay down maturing FHLB advances.

Stockholders' equity was $134.4 million at June 30, 2010, an increase of $4.6 million, or 3.6% from December 31, 2009. The increase was due primarily to net income of $3.1 million and unrealized gains on securities of $3.3 million.  This increase was partially offset by dividend payments of $838,000 to common shareholders and $410,000 to preferred shareholders and net unrealized losses on derivatives of $241,000.  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, 2010.

Net interest income before the provision for loan losses increased $566,000 from $10.3 million for the three months ended June 30, 2009 to $10.9 million for the three months ended June 30, 2010. The primary reason for the increase was an increase in average earning assets of $61.2 million as a result of increased liquidity and an increase in net interest margin of 2 basis points to 3.23% in the second quarter 2010 compared to 3.21% for the second quarter 2009.  On a linked quarter basis, net interest income before the provision for loan losses increased $390,000 primarily due to an increase in average earning assets of $28.5 million and an increase of 5 basis points in net interest margin.

Net interest income before the provision for loan losses increased $662,000 from $20.7 million for the six months ended June 30, 2009 to $21.4 million for the six months ended June 30, 2010. The primary reason for the increase was an increase in average earning assets of $45.9 million as a result of increased liquidity, partially offset by a decrease in net interest margin of 2 basis points to 3.20% in the first half of 2010 compared to 3.22% for the first half of 2009.  

The provision for loan losses for the second quarter of 2010 was $1.5 million compared to $1.8 million in the second quarter of 2009.  The provision for loan loss for the first half of 2010 was $3.1 million compared to $3.2 million in the first half of 2009.  Non-performing loans to total loans at June 30, 2010 were 2.49% compared to 2.60% at June 30, 2009.  Non-performing loans to total loans have also declined from 3.03% as of December 31, 2009 and 2.62% as of March 2010.  Non-performing loans in all loan segments have decreased.  Non-performing assets to total assets were 2.31% at June 30, 2010 comparing favorably to ratios of 2.44% at March 31, 2010, 2.86% at December 31, 2009 and 2.41% as of June 30, 2009.  Heeter continued, "Asset quality has continued to improve over the last couple of quarters and we are making considerable progress to reduce non-performing assets.  We continue to monitor our loan portfolio closely to ensure we are taking prompt action when necessary to minimize possible losses."

Non-interest income decreased $753,000 to $3.4 million for the three months ended June 30, 2010 compared to the same period in 2009. The decrease was primarily due to a reduction on gain on sale of loans of $409,000 as mortgage loan sales slowed as did production in comparison to the second quarter of 2009.  Another reason for the decline was a $323,000 decrease in gains on sale of securities and a $151,000 increase in other than temporary impairment in the second quarter of 2010 compared to the second quarter of 2009.  Other than temporary impairment in the second quarter of 2010 included several private labeled mortgage backed securities that have seen charge offs in the last quarter in the individual mortgage back pools.  These decreases were partially offset by increases in service fees on transaction accounts of $10,000 and increases in commission income of $222,000.  The increase in commission income was due primarily to commissions received from the trust and brokerage businesses for the quarter.  On a linked quarter basis, non-interest income increased by $252,000.

Non-interest income decreased $1.2 million to $6.5 million for the six months ended June 30, 2010 compared to the same period in 2009.  The decrease was primarily due to a reduction in gain on sale of loans of $1.1 million and increased other than temporary impairment of securities of approximately $528,000.  These decreases are partially offset with increases in commission income of $536,000.

Non-interest expense decreased $826,000 to $10.5 million for the three months ended June 30, 2010 compared to $11.3 million for the same period in 2009, or a decrease of $196,000 when excluding the one-time FDIC special assessment in the second quarter for $630,000.  Decreases in current quarter non-interest expense compared to the same period in 2009 include decreases in salaries and employee benefits of $356,000, decreases in marketing expense of $57,000, decreases in intangible amortization of $44,000, decreases in deposit insurance premiums of $592,000 and decreases in other expenses of $37,000.  These decreases were partially offset by increases in data processing fees of $26,000, increases in software subscriptions and maintenance of $58,000 and increases in other repossessed asset expense of $231,000.  On a linked quarter basis, non-interest expense increased by $150,000 compared to the three months ended March 31, 2010, primarily due to an increase in repossessed asset expense.

Non-interest expense decreased $863,000 to $20.8 million, for the six months ended June 30, 2010 compared to $21.7 million for the same period in 2009.   The decrease in expenses was partially due to the FDIC special assessment in the second quarter of 2009 as discussed above.   Another reason for the decrease was a decline in salaries and benefits of $480,000.  These decreases were partially offset by an increase of $401,000 in repossessed asset expense.  Heeter concluded, "Our staff has diligently decreased expenses over the last several quarters and are continually attempting to increase the efficiency of our company."

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.

SOURCE MutualFirst Financial, Inc.