MutualFirst Announces Earnings for the Second Quarter of 2017

MUNCIE, Ind., July 25, 2017 /PRNewswire/ -- MutualFirst Financial, Inc. (NASDAQ: MFSF), the holding company of MutualBank (the "Bank"), announced today net income available to common shareholders for the second quarter ended June 30, 2017 was $3.9 million, or $0.52 diluted earnings per common share.  This compared to net income available to common shareholders for the same period in 2016 of $4.2 million, or $0.55 diluted earnings per common share. Annualized return on average assets was 0.99% and return on average tangible common equity was 10.92% for the second quarter of 2017 compared to 1.10% and 12.01%, respectively, for the same period of last year. 

Net income available to common shareholders for the six months ended June 30, 2017 increased to $7.1 million, or $0.95 diluted earnings per common share, compared to net income available to common shareholders of $6.5 million, or $0.86 diluted earnings per common share, for the six months ended June 30, 2016.  Annualized return on average assets was 0.91% and return on average tangible common equity was 10.09% for the first half of 2017 compared to 0.87% and 9.48%, respectively, for the same period of last year.

Other financial highlights for the second quarter and the first six months ended June 30, 2017 included:

• Commercial loan balances increased $10.5 million, or 9.2% on an annualized basis, and non-real estate consumer loan balances increased $13.1 million, or 30.8% on an annualized basis, in the second quarter of 2017.
• Asset quality improved as non-performing loans to total loans were 0.30% as of June 30, 2017 compared to 0.46% as of December 31, 2016 and non-performing assets to total assets were 0.27% as of June 30, 2017 compared to 0.42% as of December 31, 2016.
• Tangible common equity to total assets was 9.17% and tangible book value per common share was $19.65 as of June 30, 2017 compared to tangible common equity to total assets of 8.89% and tangible book value per common share of $18.82 as of December 31, 2016.
• Net interest income for the second quarter of 2017 increased by $374,000 on a linked quarter basis and increased by $1.1 million compared to the second quarter of 2016.
• Net interest margin was 3.29% for the second quarter of 2017 compared to 3.21% in the first quarter of 2017 and 3.16% in the second quarter of 2016. Tax equivalent net interest margin was 3.39% for the second quarter of 2017 compared to 3.32% in the first quarter of 2017 and 3.25% in the second quarter of 2016.
• Non-interest income in the second quarter of 2017 increased by $546,000 on a linked quarter basis and decreased by $1.2 million when compared to the second quarter of 2016.
• Non-interest expense decreased in the second quarter of 2017 by $189,000 on a linked quarter basis and decreased by $23,000 when compared to the second quarter of 2016. 
• The efficiency ratio was 66.9% in the second quarter of 2017 compared to 72.0% in the first quarter of 2017 and 66.6% in the second quarter of 2016.

"We believe this is another strong quarter of core performance and that the momentum created from our strategic initiatives will continue to increase shareholder value," said David W. Heeter, President and CEO. 

Balance Sheet

Assets increased $22.8 million as of June 30, 2017 compared to December 31, 2016, primarily due to the increase in gross loans of $14.9 million.  The increase in the gross loan portfolio was primarily due to an increase in commercial loans of $10.8 million, or 4.7% on an annualized basis and in non-real estate consumer loans of $16.4 million, or 19.7% on an annualized basis.  Heeter continued, "We continue to have success in changing our balance sheet mix.  At the end of the second quarter, our commercial portfolio is now our largest loan portfolio."

The increase in gross loans was partially offset by a decline in the consumer residential loan portfolio of $12.4 million.  Mortgage loans held for sale increased by $4.7 million, since December 31, 2016.  The Bank typically sells longer term fixed rate mortgage loans to mitigate interest rate risk.  Mortgage loans sold during the first half of 2017 totaled $50.0 million compared to $60.8 million in the first half of 2016 as originations have slowed due to higher market rates.

Deposits increased by $19.6 million in the first half of 2017.  The increase in deposits was a result of an increase in core deposits of $13.5 million and an increase of $6.1 million in certificates of deposit.  Core deposits were 68% of the Bank's total deposits as of June 30, 2017.

Allowance for loan losses was constant at $12.4 million as of June 30, 2017 compared to December 31, 2016.  Net charge-offs in the first half of 2017 were $456,000, or 0.08% of average total loans on an annualized basis, compared to $387,000, or 0.07% of average total loans on an annualized basis in the first half of 2016.  The allowance for loan losses to non-performing loans as of June 30, 2017 was 351.2% compared to 230.1% as of December 31, 2016.  The allowance for loan losses to total loans as of June 30, 2017 was 1.05% compared to 1.06% as of December 31, 2016.  Non-performing loans to total loans at June 30, 2017 were 0.30% compared to 0.46% at December 31, 2016.  Non-performing assets to total assets were 0.27% at June 30, 2017 compared to 0.42% at December 31, 2016.

Stockholders' equity was $146.3 million at June 30, 2017, an increase of $6.3 million from December 31, 2016. The increase was primarily due to net income available to common shareholders of $7.1 million, an increase in accumulated other comprehensive income of $1.4 million and an increase of $139,000 due to exercises of stock options.  These increases were partially offset by common stock dividends of $2.4 million for the first half of 2017.  The Company's tangible book value per common share as of June 30, 2017 increased to $19.65 compared to $18.82 as of December 31, 2016 and the tangible common equity ratio increased to 9.17% as of June 30, 2017 compared to 8.89% as of December 31, 2016.  MFSF's and the Bank's risk-based capital ratios were well in excess of "well-capitalized" levels as defined by all regulatory standards as of June 30, 2017.

Income Statement

Net interest income before the provision for loan losses increased $1.1 million for the quarter ended June 30, 2017 compared to the same period in 2016.  The increase in net interest income was primarily a result of an increase of $79.0 million in average interest earning assets, due to an increase of $78.7 million in average loans.  Along with the increase in earning assets, net interest margin increased by 13 basis points to 3.29%, while the tax equivalent margin increased 14 basis points to 3.39%.  The increase in the margin was primarily the result of average interest earning assets repricing upwards faster than average interest bearing liabilities.  On a linked quarter basis, net interest income before the provision for loan losses increased $374,000 as net interest margin increased by 8 basis points and average interest earning assets increased by $13.4 million primarily due to increases in the average loan portfolio. 

Net interest income before the provision for loan losses increased $2.1 million for the first half of 2017 compared to the same period in 2016.  The increase was a result of an increase of $80.5 million in average interest earning assets due to an increase in the average loan portfolio of $83.5 million. This increase was aided by the net interest margin increasing to 3.25% in the first half of 2017 compared to 3.14% in the first half of 2016, while the tax equivalent net interest margin increased to 3.36% in the first half of 2017 compared to 3.24% in the comparable period in 2016.  

Provision for loan losses in the second quarter of 2017 was $300,000 compared to $150,000 during last year's comparable period.  The increase was due to management's ongoing evaluation of the adequacy of the allowance for loan losses, which was partially attributable to an increasing loan portfolio and a low, but consistent level in net charge offs of $256,000, or 0.09% of loans on an annualized basis, in the second quarter of 2017 compared to net charge offs of $216,000, or 0.08% of loans on an annualized basis, in the second quarter of 2016.   

The provision for loan losses for the first half of 2017 was $500,000 compared to $350,000 during last year's comparable period.  The increase was primarily due to a loan portfolio that has increased $77.0 million, or 7.0% over the last year.  Net charge-offs for the first half of 2017 equaled $456,000, or 0.08% of loans on an annualized basis compared to $387,000, or 0.07% in the same period of 2016.

Non-interest income for the second quarter of 2017 was $4.7 million, a decrease of $1.2 million compared to the second quarter of 2016.  Decreases in non-interest income included a decrease of $601,000 in other income primarily due to a gain on bank owned life insurance of $346,000 due to a death and a $200,000 gain on sale of an interest in a low income housing property in the second quarter of 2016 that was not repeated in 2017. Net gain on sale of loans decreased $462,000 as mortgage originations slowed compared to the second quarter of 2016.  Gain on sale of investments decreased $373,000 as the Company took advantage of a decline in longer term interest rates in the second quarter of 2016 to reposition approximately $17 million of the investment portfolio which was not repeated in 2017.  These decreases were partially offset by an increase of $186,000 on deposit service fee income as interchange income has increased due to increased debit card activity. On a linked quarter basis, non-interest income increased $546,000 due to an increase of $314,000 in deposit service charges primarily as a result of increases in interchange income and overdraft income due to seasonality, an increase of $175,000 in net gain on sale of loans and an increase of $122,000 in commission income from our trust and wealth management business.

Non-interest income for the first half of 2017 was $8.8 million, a decrease of $1.1 million compared to the first half of 2016.  The reasons for the decrease are primarily a result of one-time income items in 2016 not repeated in 2017 as discussed above.

Non-interest expense decreased $23,000 when comparing the second quarter of 2017 with the same period in 2016.  The decrease was primarily due to a decrease of $126,000 in salaries and benefits due to lower health insurance costs and lower mortgage originator commissions compared to the second quarter of 2016.   Other expenses also declined by $158,000 primarily due to a decline in intangible amortization and savings from branch closures in the first quarter of 2017. The decreases were offset by an increase of $162,000 in occupancy expense due to a loss of rental income from an office building sold in the fourth quarter of 2016 and an increase of $54,000 in ATM/debit card expense due to EMV card issues and increased transaction charges. On a linked quarter basis, non-interest expense decreased $189,000 partially due to a decrease of $192,000 in salaries and employee benefits.

Non-interest expense decreased $33,000 when comparing the first half of 2017 with the same period in 2016.  Other expenses decreased by $462,000 in the first half of 2017 primarily due to several extraordinary items in the first half of 2016 that were not repeated in 2017. This decrease was partially offset by an increase of $325,000 in occupancy expense as explained above and an increase of $109,000 in salaries and employee benefits due to normal salary adjustments.

The effective tax rate for the second quarter of 2017 was 25.6% compared to 24.3% in the same quarter of 2016.  The effective tax rate for the first six months of 2017 was 25.0% compared to 24.5% for the same period in 2016. The slight increase was due to increased taxable income as a percentage of total income. 

Heeter concluded, "We are excited to see that investments made over the last few years are paying dividends and our focus continues to be on maintaining our performance momentum and building shareholder value."

MutualFirst Financial, Inc. is the parent company of MutualBank, an Indiana-based financial institution since 1889. MutualBank has twenty-seven full-service retail financial centers in Allen, Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash Counties in Indiana. MutualBank has two offices located in Fishers and Crawfordsville, Indiana specializing in wealth management and trust services and a loan origination office in New Buffalo, Michigan. MutualBank also operates a wholly owned subsidiary named Summit Mortgage which operates out of Fort Wayne, Indiana. MutualBank provides a full range of financial services including commercial and business banking, personal banking, wealth management, trust services, investments and internet banking services. The Company's stock is traded on the NASDAQ National Market under the symbol "MFSF". Additional information can be found online 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 Litigation 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.

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SOURCE MutualFirst Financial, Inc.