EX-99.1 2 pr2003.htm

PRESS RELEASE

Date: October 20, 2003
From: MutualFirst Financial, Inc.
For Publication: Immediately
Contact: Tim McArdle, Senior Vice President and Treasurer of
MutualFirst Financial, Inc. (765) 747-2818

MutualFirst Announces Third Quarter 2003 Earnings

MutualFirst Financial, Inc. (NASDAQ: MFSF), the holding company of Mutual Federal Savings Bank (the "Bank"), announced today that net income for the third quarter ended September 30, 2003 was $2.0 million, or $.41 for basic and $.39 for diluted earnings per share. This compared to net income for the comparable period in 2002 of $2.3 million, or $.44 for basic and $.43 for diluted earnings per share. The decrease was due primarily to a significant reduction in the gain on sale of loans and an impairment allowance on the Bank's originated mortgage servicing rights asset. Annualized return on assets was .98% and return on equity was 8.27% for the third quarter of 2003 compared to 1.19% and 9.50% respectively, for the same period of last year.

Net income for the nine months ended September 30, 2003 was $6.4 million or $1.28 for basic and $1.24 for diluted earnings per share. This compared to net income for the comparable period in 2002 of $6.2 million or $1.11 for basic and $1.09 for diluted earnings per share. The 13.8% increase in diluted earnings per share was a result of share repurchases and increased earnings during the period. Annualized return on assets was 1.09% and return on equity was 9.03% for the first nine months of 2003 compared to 1.07% and 8.04% respectively, for the same period of last year.

Assets totaled $813.7 million at September 30, 2003, an increase from December 31, 2002 of $37.9 million, or 4.9%. Loans, excluding loans held for sale, increased $53.3 million, or 8.2%. Consumer loans increased $16.2 million, or 9.4%, and commercial business loans increased $4.6 million, or 13.3%, while commercial and residential mortgage loans held in portfolio increased $33.9 million, or 7.6%. Mortgage loans held for sale decreased $5.5 million and mortgage loans sold year-to-date totaled $45.5 million. Investment securities available for sale decreased $12.0 million, or 28.2% to help fund loan production.

Allowance for loan losses increased $421,000 from $6.3 million at December 31, 2002 to $6.7 million at September 30, 2003. Net charge offs for the first nine months of 2003 were $654,000 or .13% of average loans on an annualized basis compared to $188,000, or .04% of average loans for the comparable period in 2002. As of September 30, 2003 allowance for loan losses and non-performing loans as a percentage of loans receivable were .96% and 226.96%, respectively.






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Total deposits were $576.0 million at September 30, 2003 an increase of $25.7 million, or 4.7% from December 31, 2002. Of this growth, $12.2 million was in demand and savings deposits. Total borrowings increased $8.8 million to $127.1 million at September 30, 2003 from $118.3 million at December 31, 2002.

Stockholders' equity decreased $349,000 from $96.7 million at December 31, 2002, to $96.4 million at September 30, 2003. The decrease was due primarily to the repurchase of 284,778 shares of common stock for $6.1 million and dividend payments of $1.6 million. These decreases were partially offset by net income of $6.4 million, Employee Stock Ownership Plan (ESOP) shares earned of $545,000, and RRP shares earned of $338,000. Also, unrealized gain on securities available for sale decreased $273,000 from $464,000 at December 31, 2002 to $191,000 at September 30, 2003.

Net interest income before provision was flat at $6.8 million for the three months ended September 30, 2003 compared to the three months ended September 30, 2002. The interest rate spread decreased from 3.60% for the three-month period ended September 30, 2002, to 3.55% for the comparable period in 2003 as yields on interest-earning assets decreased at a slightly higher rate than the decrease in the cost of interest-bearing liabilities. Net interest income increased $273,000 from $20.3 million for the nine months ended September 30, 2002, to $20.6 million for the nine months ended September 30, 2003. The interest rate spread increased from 3.55% for the nine-month period ended September 30, 2002, to 3.61% for the comparable period in 2003.

The provision for loan losses for the third quarter of 2003 was $325,000, $50,000 less than last year's comparable period. Non-performing loans to total loans at September 30, 2003 were .42% compared to .78% at December 31, 2002. Non-performing assets to total assets were .52% at September 30, 2003 compared to .89% at December 31, 2002.

Non-interest income decreased $611,000 to $1.1 million for the three months ended September 30, 2003 compared to $1.7 million for the same period in 2002. The decrease was primarily due to a reduction in gains on sale of loans of $303,000 in the third quarter of 2003 compared to the comparable 2002 quarter due to a lower volume of loans sold and less favorable pricing.

Included in the reduction, was a $320,000 valuation impairment allowance on the Bank's originated mortgage servicing rights asset. Mortgage servicing rights are created when mortgage loans are sold and the Bank retains the servicing. Mortgage servicing rights are amortized to loan servicing income over the estimated average life of the loans sold so that when the loan pays off, as expected over time, the mortgage servicing asset will be amortized to zero over the same time frame. When interest rates increase, the value of the servicing rights will usually increase due to decreased prepayment speeds. When rates decline, their value will usually fall due to increased prepayment speeds. An independent valuation of the Bank's mortgage serving rights has indicated that the impairment allowance was warranted due to the recent decrease in interest rates and increased prepayment speeds. The valuation also indicated that if interest rates were to increase, a portion or all of the impairment allowance may be recovered, and if rates continue to fall additional impairment allowances would be necessary.












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Non-interest income for the nine months ended September 30, 2003 increased $221,000 from $4.3 million for the nine months ended September 30, 2002 to $4.5 million. This increase was due primarily to a $97,000 increase in gain on sale of loans (net of the aforementioned impairment allowance), a $148,000 increase in cash surrender value of life insurance and a $189,000 increase in service fee income in the 2003 period compared to the comparable period in 2002. These increases were partially offset by a decrease in other income of $151,000 due primarily to an increased amortization rate of mortgage servicing rights compared to the comparable period in 2002.

Non-interest expense increased $99,000 or 2.0% to $5.0 million for the three months ended September 30, 2003 compared to $4.9 million for the same period in 2002. For the nine-month period non-interest expense was up $499,000 or 3.4% when comparing the first nine months of 2003 to the same period in 2002. The majority of this increase was due to a $345,000 increase in salaries and employee benefits (which included a $175,000 increase in health insurance costs).

Income tax expense decreased $323,000 for the three months ended September 30, 2003 compared to the same period in 2002. The decrease resulted from decreased taxable income and a decrease in the effective tax rate from 29.4% to 24.5% due to increased low income housing tax credits as a percentage of taxable income. For the nine-month period ended September 30, 2003, income tax expense increased $40,000 compared to the same period in 2002. The increase was due primarily to increased taxable income. The effective tax rate decreased from 27.7% to 27.3% when comparing the two nine month periods ended September 30, 2002 and 2003, respectively.

MutualFirst Financial, Inc. and Mutual Federal Savings Bank are headquartered in Muncie, Indiana with seventeen full service offices in Delaware, Randolph, Kosciusko and Grant counties.


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.

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MUTUALFIRST FINANCIAL INC.

30-Sep 31-Dec
Selected Financial Condition Data (Unaudited): 2003 2002
(000) (000)
Total Assets $813,691 $775,798
Cash and cash equivalents 25,164 23,620
Loans held for sale 2,350 7,851
Loans receivable, net 693,984 641,113
Investment securities available for sale, at market value 30,412 42,362
Total deposits 576,047 550,364
Total borrowings 127,070 118,287
Total stockholders' equity 96,368 96,717

Three Months Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended Ended
30-Sep 30-Jun 30-Sep 30-Sep 30-Sep
Selected Operations Data (Unaudited): 2003 2003 2002 2003 2002
(000) (000) (000) (000) (000)

Total interest income $11,532  $11,737  $12,550  $35,060  $38,021 
Total interest expense 4,696  4,828  5,709  14,488  17,723 
   Net interest income 6,836  6,909  6,841  20,572  20,298 
Provision for loan losses 325  375  375  1,075  1,337 
Net interest income after provision
  for loan losses 6,511  6,534  6,466  19,497  18,961 
  Non-interest income
Fees and service charges 745  748  715  2,192  2,010 
Equity in losses of limited partnerships (38) (78) (129) (262) (268)
Commissions 178  175  210  528 589
Net gains (losses) on loan sales and servicing (50) 573  573  873  776 
Increase in cash surrender value of life insurance 254  502  294  1,050  902 
Other income 45  70  82  149  300 
  Total non-interest income 1,134  1,990  1,745  4,530  4,309 
  Non-interest expense
Salaries and benefits 3,124  3,221  3,086  9,601  9,256 
Occupancy and equipment 708 642  619  1,993 1,791
Data processing fees 140  151  186  449  580 
Deposit insurance expense 22  22  23  67  70 
Marketing 203  227  148  526  356 
Other expenses 821  926  857  2,527  2,611 
  Total non-interest expense 5,018  5,189  4,919  15,163  14,664 
Income before taxes 2,627  3,335  3,292  8,864 8,606
Income tax provision 644  945  967  2,424  2,384 
  Net income $1,983  $2,390  $2,325  $6,440  $6,222 











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Three Months Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended Ended
30-Sep 30-Jun 30-Sep 30-Sep 30-Sep
Selected Financial Ratios and Other Financial Data (Unaudited): 2003 2003 2002 2003 2002
Share and per share data:
 Average common shares outstanding
   Basic 4,876,306  4,869,462  5,268,829  5,014,673  5,621,866 
   Diluted 5,073,508  5,044,636  5,391,833  5,190,117  5,727,376 
 Per share:
   Basic earnings $0.41  $0.49  $0.44  $1.28  $1.11 
   Diluted earnings $0.39  $0.47  $0.43  $1.24  $1.09 
   Dividends $0.11  $0.10  $0.09  $0.31  $0.27 

Dividend payout ratio 28.21% 21.28% 20.93% 25.00% 24.77%

Performance Ratios:
   Return on average assets (ratio of net
      income to average total assets)(1) 0.98% 1.21% 1.19% 1.09% 1.07%
   Return on average equity (ratio of net
      income to average equity)(1) 8.27% 10.15% 9.50% 9.03% 8.04%
   Interest rate spread information:
    Average during the period(1) 3.55% 3.65% 3.60% 3.61% 3.55%

    Net interest margin(1)(2) 3.70% 3.81% 3.83% 3.78% 3.81%

Efficiency Ratio 62.96% 58.31% 57.29% 60.41% 59.59%

    Ratio of average interest-earning
     assets to average interest-bearing
     liabilities 106.44% 106.38% 107.22% 106.54% 108.04%

Allowance for loan losses:
       Balance beginning of period $6,539  $6,441  $5,940  $6,286  $5,449 
       Charge offs:
          One- to four- family 53  38  34  146  94 
          Multi-family 0  0  0  0  0 
          Commercial real estate 0  114  0  114  300 
          Construction or development 0  0  0  0  0 
          Consumer loans 180  210  186  561  516 
          Commercial business loans 11  0  12  30  180 
              Sub-total 244  362  232  851  1,090 

        Recoveries:
          One- to four- family 0  24  483  27  491 
          Multi-family 0  0  0  0  0 
          Commercial real estate 64  0  0  64  348 
          Construction or development 0  0  0  0  0 
          Consumer loans 17  58  19  97  49 
          Commercial business loans 6  3  14  9  14 
              Sub-total 87  85  516  197  902 

Net charge offs 157  277  (284) 654  188 
Additions charged to operations 325  375  375  1,075  1,338 
Balance end of period $6,707  $6,539  $6,599  $6,707  $6,599 
Net loan charge-offs to average loans (1) 0.09% 0.16% -0.17% 0.13% 0.04%













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September 30, June 30, September 30,
2003 2003 2002
 Total shares outstanding 5,265,802  5,267,974  5,598,052 
   Tangible book value per share $18.13  $17.85  $16.95 
 Nonperforming assets (000's)
   Loans: Non-accrual $2,956  $3,915  $5,667 
         Past due 90 days or more 0  90  13 
         Restructured 0  0  0 
              Total nonperforming loans 2,956  4,005  5,680 
    Real estate owned 717  928  823 
    Other repossessed assets 595  494  573 
              Total nonperforming assets $4,268  $5,427  $7,076 

Asset Quality Ratios:
     Non-performing assets to total assets 0.52% 0.68% 0.90%
     Non-performing loans to total loans 0.42% 0.58% 0.86%
     Allowance for loan losses to non-performing loans 226.89% 163.27% 116.19%
     Allowance for loan losses to loans receivable 0.96% 0.97% 1.00%

(1) Ratios for the three and nine month periods have been annualized.

(2) Net interest income divided by average interest earning assets.












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