MutualFirst Announces Earnings for the Third Quarter of 2017

MUNCIE, Ind., Oct. 24, 2017 /PRNewswire/ -- MutualFirst Financial, Inc. (NASDAQ: MFSF), the holding company of MutualBank (the "Bank"), announced today net income available to common shareholders for the third quarter ended September 30, 2017 was $3.8 million, or $0.50 diluted earnings per common share.  This compared to net income available to common shareholders for the same period in 2016 of $3.5 million, or $0.47 diluted earnings per common share. Annualized return on average assets was 0.95% and return on average tangible common equity was 10.24% for the third quarter of 2017 compared to 0.92% and 9.96%, respectively, for the same period of last year. 

Net income available to common shareholders for the nine months ended September 30, 2017 was $10.9 million, or $1.45 diluted earnings per common share, compared to net income available to common shareholders of $10.0 million, or $1.32 diluted earnings per common share for the nine months ended September 30, 2016.  Annualized return on average assets was 0.92% and return on average tangible common equity was 10.14% for the first nine months of 2017 compared to 0.89% and 9.64%, respectively, for the same period of last year.

Other financial highlights for the third quarter and the nine months ended September 30, 2017 included:

• Non-real estate consumer loan balances increased $10.0 million, or 21.8% on an annualized basis, in the third quarter of 2017 and increased $26.4 million, or 21.1% on an annualized basis for the first nine months of 2017.
• Deposits increased $26.0 million, or 8.9% on an annualized basis, in the third quarter of 2017 and increased $45.6 million, or 5.3% on an annualized basis, in the first nine months of 2017.
• Tangible common equity to total assets was 9.38% and tangible book value per common share was $20.06 as of September 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 third quarter of 2017 increased by $177,000 on a linked quarter basis and increased by $1.0 million compared to the third quarter of 2016.  Net interest income for the first nine months of 2017 increased $3.1 million compared to the same period in 2016.
• Provision for loan losses increased $70,000 in the third quarter of 2017 compared to the linked quarter and increased $120,000 compared to the third quarter of 2016.  Provision for loan losses increased $270,000 in the first nine months of 2017 compared to the same period in 2016.
• Net interest margin was 3.33% for the third quarter of 2017 compared to 3.29% in the second quarter of 2017 and 3.19% in the third quarter of 2016. Tax equivalent net interest margin was 3.44% for the third quarter of 2017 compared to 3.39% in the second quarter of 2017 and 3.29% in the third quarter of 2016. Net interest margin for the first nine months of 2017 increased 12 basis points compared to the same period in 2016.
• Non-interest income in the third quarter of 2017 decreased by $236,000 on a linked quarter basis and decreased by $632,000 when compared to the third quarter of 2016.  Non-interest income decreased by $1.7 million for the first nine months of 2017 compared to the same period in 2016.
• Non-interest expense increased in the third quarter of 2017 by $228,000 on a linked quarter basis and increased by $82,000 when compared to the third quarter of 2016.  Non-interest expenses increased by $49,000 for the first nine months of 2017 compared to the same period in 2016.
• The efficiency ratio improved to 68.5% in the third quarter 2017 compared to 69.7% in the third quarter of 2016 and improved to 69.1% for the first nine months of 2017 compared to 71.0% for the first nine months of 2016.

On October 4, 2017, MutualFirst Financial, Inc. and Universal Bancorp announced that they had entered into a merger agreement, where Universal will be merged into MutualFirst. Upon closing, Universal's wholly owned subsidiary, BloomBank, will be merged into MutualFirst's wholly owned subsidiary, MutualBank. The companies expect the merger to close in the first quarter of 2018. More information about the merger can be found in the MFSF 8-K filed on October 4, 2017.

"We are pleased with another strong quarter of core performance and believe our pending merger with Universal will continue the momentum that we have generated over the last several years," said David W. Heeter, President and CEO. 

Balance Sheet

Assets increased $28.7 million, or 2.5% on an annualized basis, as of September 30, 2017 compared to December 31, 2016, primarily due to the increase in gross loans of $20.6 million, or 2.4% on an annualized basis.  The increase in the gross loan portfolio was primarily due to an increase in non-real estate consumer loans of $26.4 million, or 21.1% on an annualized basis, and in commercial loans of $10.7 million, or 3.2% on an annualized basis.  

The increase in gross loans was partially offset by a decline in the consumer residential loan portfolio of $16.5 million.  Mortgage loans held for sale increased by $723,000, since December 31, 2016.  The Bank sells longer term fixed rate mortgage loans to mitigate interest rate risk and generate fee income.  Mortgage loans sold during the first nine months of 2017 totaled $84.8 million compared to $110.4 million in the first nine months of 2016 as mortgage production slowed compared to the first nine months of 2016 due to higher interest rates and lower refinancing opportunities.

Deposits increased by $45.6 million in the first nine months of 2017.  The increase in deposits was a result of an increase in core deposits of $34.1 million and an increase of $11.4 million in certificates of deposit.

Allowance for loan losses was $12.4 million as of September 30, 2017 compared to $12.4 million as of December 31, 2016.  Net charge-offs in the first nine months of 2017 were $874,000, or 0.10% of average total loans on an annualized basis, compared to $654,000, or 0.08% of average total loans on an annualized basis in the first nine months of 2016.  The allowance for loan losses to non-performing loans as of September 30, 2017 was 290.4% compared to 230.1% as of December 31, 2016.  The allowance for loan losses to total loans as of September 30, 2017 was 1.04% compared to 1.06% as of December 31, 2016.  Non-performing loans to total loans at September 30, 2017 were 0.36% compared to 0.46% at December 31, 2016.  Non-performing assets to total assets were 0.30% at September 30, 2017 compared to 0.42% at December 31, 2016.

Stockholders' equity was $150.2 million at September 30, 2017, an increase of $10.2 million from December 31, 2016. The increase was primarily due to net income available to common shareholders of $10.9 million, an increase in accumulated other comprehensive income of $1.7 million and an increase of $1.2 million due to exercises of stock options.  These increases were partially offset by common stock dividends of $3.5 million for the first nine months of 2017.  The Company's tangible book value per common share as of September 30, 2017 increased to $20.06 compared to $18.82 as of December 31, 2016 and the tangible common equity ratio increased to 9.38% as of September 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 September 30, 2017.

Income Statement

Net interest income before the provision for loan losses increased $1.0 million for the quarter ended September 30, 2017 compared to the same period in 2016.  The increase in net interest income was primarily a result of an increase of $67.6 million in average interest earning assets, due to an increase of $61.2 million in average loans.  This increase was aided by an increase of 14 basis points in net interest margin to 3.33%, while the tax equivalent margin increased 15 basis points to 3.44%.  The increase in net interest margin was the result of average interest earning assets, primarily loans, repricing higher, due to recent increases in the Fed Funds rate, exceeding the increase in rates on average interest-bearing liabilities.  On a linked quarter basis, net interest income before the provision for loan losses increased $177,000 as net interest margin increased by 4 basis points. 

Net interest income before the provision for loan losses increased $3.1 million for the first nine months of 2017 compared to the same period in 2016.  The increase was a result of an increase of $76.2 million in average interest earning assets due to an increase in the average loan portfolio of $76.1 million and an increase of 12 basis points in net interest margin to 3.28% compared to 3.16% for the first nine months of 2016. The tax equivalent margin for the first nine months of 2017 was 3.38% compared to 3.25% for the comparable period in 2016.

Provision for loan losses in the third quarter of 2017 was $370,000 compared to $250,000 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 slightly higher level in net charge offs of $418,000, or 0.14% of loans on an annualized basis, in the third quarter of 2017 compared to net charge offs of $267,000, or 0.09% of loans on an annualized basis, in the third quarter of 2016.   

The provision for loan losses for the first nine months of 2017 was $870,000 compared to $600,000 during last year's comparable period.  The increase was primarily due to our loan portfolio that has increased $55.3 million, or 4.9% over the last year.  Net charge-offs for the first nine months of 2017 equaled $874,000, or 0.10% of loans on an annualized basis, compared to $654,000, or 0.08% in the same period of 2016.

Non-interest income for the third quarter of 2017 was $4.4 million, a decrease of $632,000 compared to the third quarter of 2016.  This decrease was primarily a result of a decline of $538,000 in net gain on sale of mortgage loans in the third quarter of 2017 compared to the same period in 2016.  This was primarily due to lower production due to weaker demand as interest rates increased and refinancing activity slowed. This decrease was partially offset by an increase of $136,000 in service fee income primarily due to increased interchange income. On a linked quarter basis, non-interest income decreased $236,000 due to a decrease of $234,000 in gain on sale of securities.

Non-interest income for the first nine months of 2017 was $13.2 million, a decrease of $1.7 million compared to the first nine months of 2016.  The reasons for the decrease include a decline of $1.2 million in gain on sale of mortgage loans primarily due to slower production; a decline of $647,000 in other income due to one-time income received in the second quarter 2016, not repeated in 2017; a decline of $409,000 in gain on sale of securities.  These decreases were partially offset by an increase of $348,000 in service fee income as described earlier.

Non-interest expense increased $82,000 when comparing the third quarter of 2017 with the same period in 2016.  The increase was primarily due to an increase of $196,000 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 $118,000 in data processing fees due to general inflationary increases and increased usage of services offered by our core processor. These increases were partially offset by a decline of $194,000 in other expense due to a higher level of fraud losses in the third quarter of 2016 not repeated in 2017. On a linked quarter basis, non-interest expense increased $228,000 partially due to increased health insurance expenses.

Non-interest expense increased $49,000 when comparing the first nine months of 2017 with the same period in 2016.  Net occupancy expense increased by $521,000 due to a loss of rental income from an office building sold in the fourth quarter of 2016.  Data processing increased by $232,000 due to general inflationary increases and increased usage of services offered by our core processor and ATM and debit card expense increased $157,000 due to increased debit card transactions.  These increases were primarily offset by a decrease of $656,000 in other expenses due to a decreased level of operating expenses and reduction in fraud expenses and a decrease of $141,000 in advertising expense.

The effective tax rate for the third quarter of 2017 was 23.2% compared to 25.8% in the same quarter of 2016. The reason for the decline was an increase in tax free income partially due to an increase in holdings of tax free municipal securities and a tax benefit from stock options exercised in the third quarter of 2017. 

The effective tax rate for the first nine months of 2017 was 24.4% compared to 24.9% for the same period in 2016. The reason for the decline was an increase in tax free income partially due to an increase in holdings of tax free municipal securities and tax benefits from stock options exercised in 2017.

Heeter concluded, "Overall, we are pleased with our continued progress toward achieving the goals we set out in our strategic plan.  We are excited about the future and we believe partnering with Universal will help to increase 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.