MutualFirst Announces Second Quarter 2013 Earnings

MUNCIE, Ind., July 24, 2013 /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, 2013 of $1.8 million, or $.26 for basic earnings per common share and $.25 for diluted earnings per common share.  This compared to net income available to common shareholders for the same period in 2012 of $1.3 million, or $.18 for basic and diluted earnings per common share. Annualized return on assets was .60% and return on average tangible common equity was 6.59% for the second quarter of 2013 compared to .45% and 4.97% respectively, for the same period of last year. 

Net income available to common shareholders for the six months ended June 30, 2013 was $3.5 million, or $.49 for basic earnings per common share and $.48 for diluted earnings per common share compared to net income available to common shareholders of $2.3 million, or $.34 for basic earnings per common share and $.33 for diluted earnings per common share for the six months ended June 30, 2012.  Annualized return on assets was .58% and return on average tangible common equity was 6.27% for the first half of 2013 compared to .43% and 4.58% respectively, for the same period of last year.

Other financial highlights for the second quarter ended June 30, 2013 included:

• Redeemed $7.2 million of preferred stock held by the United States Treasury as part of the Small Business Lending Fund.
• Gross loan balances increased by $2.4 million in the second quarter of 2013.
• Deposits decreased $13.3 million in the second quarter of 2013.
• Asset quality continues to improve as non-performing loans to total loans were 1.94% as of June 30, 2013 compared to 2.54% as of March 31, 2013 and non-performing assets to total assets were 1.77% as of June 30, 2013 compared to 2.25% as of March 31, 2013.
• Classified loans decreased approximately 17% in the second quarter of 2013 and 24% since December 31, 2012.
• Foreclosed real estate decreased $833,000 compared to March 31, 2013 and $1.3 million compared to December 31, 2012.
• Net charge offs on an annualized basis were .34% in the second quarter 2013 compared to .41% in the first quarter of 2013.
• Tangible common equity to total assets is 7.65% and tangible book value per share is $15.14 as of June 30, 2013.
• Net interest margin was 3.10% for the second quarter 2013 compared to 3.07% in the first quarter 2013.

"We were pleased with the continued improvement in earnings and credit quality.  We believe the worst is now behind us as credit quality continues to improve, and we can fully focus on creating additional shareholder value through increased earnings," said David W. Heeter, President and CEO.

Balance Sheet

Assets decreased $14.2 million as of June 30, 2013 compared to December 31, 2012, primarily due to the decrease in gross loans of $11.3 million and decreases in investment securities of $4.1 million.  The decrease in the gross loan portfolio was primarily due to a decline in one-to four- family mortgage loans of $11.1 million and a decline in our commercial portfolio of $2.0 million, partially offset by an increase in consumer loans of $1.7 million.  In the second quarter of 2013, gross loans increased $2.4 million as consumer loans increased by $3.8 million, partially offset by a decline in one-to four- family mortgage loans of $900,000 and a decline in commercial loans of $500,000.  Mortgage loans held for sale increased by $3.2 million, since December 31, 2012, as the Bank has been selling most fixed rate loans originated in the first half of 2013 to mitigate interest rate risk.  Mortgage loans sold during the first half of 2013 totaled $43.2 million compared to $15.2 million in the first half of 2012.

Deposits decreased by $29.6 million in the first half of 2013.  The decrease in deposits has been primarily in certificates of deposit which decreased $28.0 million while core transactional deposits decreased $1.6 million in the first half of 2013. Core transactional deposits increased to 52% of the Bank's total deposits as of June 30, 2013 compared to 51% as of December 31, 2012.

Allowance for loan losses was $15.7 million as of June 30, 2013 compared to $16.0 million as of March 31, 2013 and December 31, 2012.  Net charge offs in the second quarter were $840,000, or .34% of total loans on an annualized basis, compared to $1.0 million, or .41% of total loans on an annualized basis in the first quarter of 2013.  The allowance for loan losses to non-performing loans as of June 30, 2013 was 83.2% compared to 64.9% as of March 31, 2013 and 67.7% as of December 31, 2012.  The allowance for loan losses to total loans as of June 30, 2013 was 1.61% compared to 1.63% as of December 31, 2012.  Heeter commented, "The continued improvement in asset quality has allowed us to reevaluate our level of allowance for loan loss.  Our improving credit ratios are a positive sign and continuing to improve asset quality will benefit earnings."

Stockholders' equity was $131.2 million at June 30, 2013, a decrease of $8.3 million from December 31, 2012. The decrease was due primarily to a redemption of $7.2 million of preferred stock held by the United States Treasury as part of the Small Business Lending Fund and a decline in other comprehensive income of $4.3 million primarily due to changes in market rates and a reduction in unrealized gains on the investment portfolio.  Other declines resulted from dividend payments of $849,000 to common shareholders and $633,000 to preferred shareholders.  These declines were partially offset by net income of $4.1 million. The Company's tangible book value per share as of June 30, 2013 decreased to $15.14 compared to $15.33 as of December 31, 2012 and its tangible common equity ratio increased to 7.65% as of June 30, 2013 compared to 7.62% as of December 31, 2012.  MFSF 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, 2013.

Income Statement

Net interest income before the provision for loan losses decreased $330,000 for the quarter ended June 30, 2013 compared to the same period in 2012.  The decrease was a result of a $44.5 million decline in average earning assets, while the net interest margin remained at 3.10%.  The decline in average earning assets was primarily due to a decline of $71.2 million in the investment portfolio, partially offset by a $22.2 million increase in the loan portfolio.  On a linked quarter basis, net interest income before the provision for loan losses increased $42,000 as net interest margin increased by 3 basis points, partially offset by a decline of $9.6 million in average earning assets. 

Net interest income before the provision for loan losses decreased $220,000 for the first half of 2013 compared to the same period in 2012.  The decrease was a result of a $23.9 million decline in average earnings assets, partially offset by the net interest margin increasing from 3.06% in the first half of 2012 to 3.08% in the first half of 2013.

The provision for loan losses for the second quarter of 2013 decreased to $550,000 compared to $1.9 million during last year's comparable period.  The decrease was due to management's ongoing evaluation of the adequacy of the allowance for loan losses, which was partially attributable to decreased net charge offs of $840,000, or .34% of loans on an annualized basis in the second quarter of 2013 compared to charge offs of $2.5 million, or 1.04% of loans on an annualized basis in the second quarter of 2012.  Non-performing loans to total loans at June 30, 2013 was 1.94% compared to 2.61% at June 30, 2012.  Non-performing assets to total assets were 1.77% at June 30, 2013 compared to 2.23% at June 30, 2012. 

The provision for loan losses for the first half of 2013 decreased to $1.5 million compared to $3.2 million during last year's comparable period.  The decrease was primarily due to a decline in net charge offs and improving asset quality.  Non-performing loans to total loans at June 30, 2013 were 1.94% compared to 2.40% at December 31, 2012.  This decrease in non-performing loans was primarily in one-to four-family mortgage loans and commercial real estate.  Non-performing assets to total assets were 1.77% at June 30, 2013 compared to 2.21% at December 31, 2012.

Non-interest income for the second quarter of 2013 was $3.5 million a decrease of $246,000 compared to the second quarter of 2012.  Decreases in non-interest income include declines in service fee income on deposit accounts of $388,000, which is primarily due to declining overdraft income, and in net gain on sale of investments of $240,000.  Gain on loan sales declined $581,000 primarily due to loans held for sale at quarter end being valued for less than par as market rates increased late in the quarter.  This decline was offset by a recovery of the valuation in mortgage servicing rights of $456,000 due to the increase in market rates.  A $197,000 increase in gain on sale of other real estate and repossessed assets also offset declines in non-interest income for the quarter as activity on foreclosed assets has continued to be strong and current real estate values are improving.  On a linked quarter basis, non-interest income decreased $179,000, primarily due to decreased gain on sale of investments, service charge income and gain on loan sales, partially offset by increased commission income and servicing gain on serviced mortgage loans.

Non-interest income for the first half of 2013 was $7.1 million, an increase of $462,000 compared to the first half of 2012.  The increase was primarily due to $608,000 of increased gains on sales of real estate owned and other repossessed assets and an increase on servicing fees on mortgage loans of $517,000.  These increases were offset by declines in service fee income on deposit accounts of $470,000 and in gain on sale of mortgage loans of $278,000. 

Non-interest expense decreased $31,000 when comparing the second quarter of 2013 with the same period in 2012.  Professional fees and real estate expenses have declined approximately $212,000 as asset quality continues to improve.  Other declines in expenses were related to software subscriptions and maintenance of $84,000 and core deposit intangible amortization of $44,000.  These declines were mainly offset by an increase in salaries and benefits of $238,000 primarily due to increased benefit expense and in marketing expense of $67,000.  On a linked quarter basis, non-interest expense decreased $11,000 primarily due to decreased occupancy and equipment expense of $140,000 and software subscriptions and maintenance of $58,000, partially offset by increases in marketing of $169,000.

Non-interest expense increased $289,000 when comparing the first half of 2013 with the same period in 2012.  Increases were primarily a result of salaries and benefits increasing by $446,000, primarily due to increases in employee benefit costs, increases in occupancy and equipment expense of $184,000, primarily due to a harsher winter in the first quarter of 2013.  These increases were partially offset by reductions in professional fees of $113,000, in repossessed asset expense of $95,000, in intangible expense of $95,000 and in software subscriptions and maintenance of $83,000. 

The effective tax rate for the second quarter of 2013 was 30.3% compared to 27.6% in the second quarter of 2012.  The increase was due to an increase in taxable income and a change in the State of Indiana tax code.  The State of Indiana will lower the Financial Institution Tax over the next four years from 8.5% to 6.5%.  During this change, the Bank will be required to calculate the deferred tax asset at the lower phased in rate, which will increase our tax expense over this time period.

Heeter concluded, "We are encouraged by our results and the progress being made.  We continue to review ways to enhance shareholder value and at the same time mitigate risks that financial institutions face."

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

SOURCE MutualFirst Financial, Inc.