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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES
FORM 10-Q (Mark One) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ X ] No [ ]. The number of shares of the Registrant's common stock, with $.01 par value, outstanding as of September 30, 2004, was 4,781,778. FORM 10 - Q MutualFirst Financial, Inc. INDEX Signature Page PART 1 FINANCIAL INFORMATION ITEM 1. Financial Statements MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
See notes to consolidated condensed financial statements. MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
See notes to consolidated condensed financial statements. MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
See notes to consolidated condensed financial statements. MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
See notes to consolidated condensed financial statements. MutualFirst Financial, Inc. and Subsidiaries
Note 1: Basis of Presentation The consolidated financial statements include the accounts of MutualFirst Financial, Inc. (the "Company"), its wholly owned subsidiary, Mutual Federal Savings Bank, a federally chartered
savings bank ("Mutual Federal"), and Mutual Federal's wholly owned subsidiary, First MFSB Corporation. All significant inter-company accounts and transactions have been eliminated in
consolidation. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or
omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K annual report
for 2003 filed with the Securities and Exchange Commission. The interim consolidated financial statements at September 30, 2004 have not been audited by independent accountants, but in the opinion of management, reflect all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for such periods. The results of operations for the period are not necessarily
indicative of the results to be expected for the full year. The Consolidated Condensed Balance Sheet of the Company as of December 31, 2003 has been derived from the Audited Consolidated Balance Sheet of the Company as of that date. The Company has a stock-based employee compensation plan that is described more fully in Notes to Financial Statements included in the December 31, 2003 Annual Report to stockholders. The Company
accounts for this plan under the recognition and measurement principles of APB No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the grant date. The following
table illustrates the effect on net income and earnings per share if the Company had applied the fair value provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation, to stock-based employee compensation. (Dollars in thousands except for per share data) Note 2: Earnings per share Earnings per share were computed as follows: Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations. General MutualFirst Financial, Inc., a Maryland corporation (the "Company"), was organized in September 1999. On December 29, 1999, it acquired the common stock of Mutual Federal Savings Bank
("Mutual Federal") upon the conversion of Mutual Federal from a federal mutual savings bank to a federal stock savings bank. Mutual Federal was originally organized in 1889 and currently conducts its business from eighteen full service offices located in Delaware, Randolph, Grant, and Kosciusko counties, Indiana, with
its main office located in Muncie. Mutual Federal's principal business consists of attracting deposits from the general public and originating fixed rate and adjustable rate loans
secured primarily by first mortgage liens on one- to four- family residential real estate as well as commercial real estate and loans on consumer goods. The Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation insures Mutual Federal's deposit accounts up to applicable limits. Mutual Federal currently owns one subsidiary, First MFSB Corporation. The assets of First MFSB Corporation consist of an investment in Family Financial Holdings Incorporated. Family Financial is
an ordinary Indiana corporation that provides debt cancellation products to financial institutions. Critical Accounting Policies The notes to the consolidated financial statements contain a summary of the Company's significant accounting policies presented on pages 23 to 25 of the Annual Report to Shareholders for the year
ended December 31, 2003. Certain of these policies are important to the portrayal of the Company's financial condition, since they require management to make difficult, complex or subjective
judgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include determining the allowance for loan losses, the
valuation of foreclosed assets, mortgage servicing rights and intangible assets. Allowance for Loan Losses The allowance for loan losses is a significant estimate that can and does change based on management's assumptions about specific borrowers and current general economic and business conditions,
among other factors. Management reviews the adequacy of the allowance for loan losses on at least a quarterly basis. The evaluation by management includes consideration of past loss experience,
changes in the composition of the loan portfolio, the current condition and amount of loans outstanding, identified problem loans and the probability of collecting all amounts due. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.
A worsening or protracted economic decline would increase the likelihood of additional losses due to credit and market risk and could create the need for additional loss reserves. Foreclosed Assets Foreclosed assets are carried at the lower of cost or fair value less estimated selling costs. Management estimates the fair value of the properties based on current appraisal information. Fair
value estimates are particularly susceptible to significant changes in the economic environment, market conditions, and real estate market. A worsening or protracted economic decline would increase
the likelihood of a decline in property values and could create the need to write down the properties through current operations. Mortgage Servicing Rights Mortgage servicing rights ("MSRs") associated with loans originated and sold, where servicing is retained, are capitalized and included in other intangible assets in the consolidated balance
sheet. The value of the capitalized servicing rights represents the present value of the future servicing fees arising from the right to service loans in the portfolio. Critical accounting policies
for MSRs relate to the initial valuation and subsequent impairment tests. The methodology used to determine the valuation of MSRs requires the development and use of a number of estimates, including
anticipated principal amortization and prepayments of that principal balance. Events that may significantly affect the estimates used are changes in interest rates, mortgage loan prepayment speeds
and the payment performance of the underlying loans. The carrying value of the MSRs is periodically reviewed for impairment based on a determination of fair value. For purposes of measuring
impairment, the servicing rights are compared to a valuation prepared based on a discounted cash flow methodology, utilizing current prepayment speeds and discount rates. Impairment, if any, is
recognized through a valuation allowance and is recorded as amortization of intangible assets. Intangible Assets The Company periodically assesses the impairment of its goodwill and the recoverability of its core deposit intangible. Impairment is the condition that exists when the carrying amount of goodwill
exceeds it implied fair value. If actual external conditions and future operating results differ from the Company's judgments, impairment and/or increased amortization charges may be necessary to
reduce the carrying value of these assets to the appropriate value. Forward Looking Statements This quarterly report on Form 10-Q ("Form 10-Q") contains statements which constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These
statements may appear in a number of places in this Form 10-Q and include statements regarding the intent, belief, outlook, estimate or expectations of the company, its directors or its officers
primarily with respect to future events and the future financial performance of the company. Readers of this Form 10-Q are cautioned that any such forward looking statements are not guarantees of
future events or performance and involve risk and uncertainties, and that actual results may differ materially from those in the forward looking statements as a result of various factors. The
accompanying information contained in this Form 10-Q identifies important factors that could cause such differences. These factors include changes in interest rates; the loss of deposits and loan
demand to competitors; substantial changes in financial markets; changes in real estate values and the real estate market; or regulatory changes. The Company does not undertake - and specifically disclaims any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Overview The Company's results of operations depend primarily on the level of net interest income, which is the difference between the interest income earned on interest-earning assets, such as loans and
investments, and costs incurred with respect to interest-bearing liabilities, primarily deposits and borrowings. The structure of our interest-earning assets versus the structure of interest-bearing
liabilities along with the shape of the yield curve has a direct impact on our net interest income. Historically, our interest-earning assets have been longer term in nature (i.e. fixed-rate mortgage loans) and interest-bearing liabilities have been shorter term (i.e. certificates of deposit,
regular savings accounts etc). This structure would impact net interest income favorably in a decreasing rate environment, assuming a normally shaped yield curve, as the rates on interest bearing
liabilities would decrease more rapidly than rates on the interest earning assets. Conversely, in an increasing rate environment, assuming a normally shaped yield curve, net interest income would be
impacted unfavorably as rates on interest bearing assets would increase at a slower rate than rates on interest bearing liabilities. Since 2000 it has been the Company's strategic objective to change the repricing structure of its interest-earning assets from longer term to shorter term to better match the structure of our
interest bearing liabilities and therefore reduce the impact interest rate changes have on our net interest income. Strategies employed to accomplish this objective have been to increase the
originations of variable rate commercial loans and shorter term consumer loans and to sell longer term mortgage loans. The percentage of consumer and commercial loans to total loans has increased from 35% at the end of 2000 to 44% currently. On the liability side of the balance sheet, the Company is employing strategies
to increase the balance of core deposit accounts such as low cost checking and money market accounts. The percentage of core deposits to total deposits has increased from 33% to 38% over this time period. These are ongoing strategies that are dependent on current market conditions and competition. The Company converted to a public company at the end of 1999, and at the end of 2000 bought a $200 million thrift for stock. Since that time the Company has been buying back the Company's stock to manage capital
levels and enhance earnings per share. During the first nine months of 2004, the Company used $12.6 million for this purpose, thereby reducing earning assets from where they otherwise would have
been and correspondingly reducing net interest income. During the same time, in keeping with its strategic objective to reduce interest rate risk exposure, the Company sold $36.6 million of long term fixed rate loans which reduced potential earning
assets and therefore had a negative impact on net interest income. This was offset, in the short term, by recognizing a gain on the sale of these loans of $764,000 in the first nine months of this
year. Results of operations also depend upon the level of the Company's non-interest income, including fee income and service charges, and the level of its non-interest expense, including general and
administrative expenses. Financial Condition Assets totaled $830.1 million at September 30, 2004, an increase from December 31, 2003 of $6.4 million, or .8%. Gross loans, excluding loans held for sale, increased $2.3 million, or .3%.
Consumer loans increased $5.2 million, or 2.7%, and commercial business loans increased $6.5 million, or 14.6%, while residential and commercial mortgage loans held in the portfolio decreased $9.4
million, or 2.0%. The increase in consumer loans (primarily home equity related) can be attributed to the continued low interest rate environment, while the increase in commercial business loans is
primarily due to increased line of credit usage. The primary reason for the decrease in mortgage loans was the sale of fixed rate mortgage loans during the first nine months of the year, totaling
$36.6 million, in order to reduce our interest rate risk exposure. Allowance for loan losses increased $244,000 from $6.8 million at December 31, 2003 to $7.0 million at September 30, 2004. Net charge offs for the first nine months of 2004 were $865,000 or .16%
of average loans on an annualized basis compared to $654,000, or .13% of average loans for the comparable period in 2003. This can be attributed to an increase in commercial business loan charge
offs of $339,000. As of September 30, 2004 allowance for loan losses as a percentage of non-performing loans and loans receivable was 172.85% and .98%, respectively, compared to 208.26% and .95%,
respectively at December 31, 2003. Total deposits were $587.5 million at September 30, 2004 an increase of $8.2 million, or 1.4% from December 31, 2003. Excluding a $2.2 million decrease in volatile short term public funds, retail
deposits grew $10.4 million with certificates of deposits shrinking $7.2 million and core savings, checking and DMMA accounts growing by $17.6 million, in keeping with our strategic objective of
growing core deposits. Total borrowings increased $1.2 million to $138.3 million at September 30, 2004 from $137.1 million at December 31, 2003. Stockholders' equity decreased $7.8 million, or 8.0%, from $97.5 million at December 31, 2003, to $89.7 million at September 30, 2004. The decrease was due primarily to the repurchase of 535,852
shares of common stock for $12.6 million and dividend payments of $1.8 million. These decreases were partially offset by net income of $5.5 million, Employee Stock Ownership Plan (ESOP) shares earned
of $560,000, Recognition and Retention Plan (RRP) shares earned of $450,000 and stock options exercised for $355,000. Also, the market value of securities available for sale compared to their book
value decreased $256,000 from a gain of $234,000 at December 31, 2003 to a loss of $22,000 at September 30, 2004. Comparison of the Operating Results for the Three Months Ended September 30, 2004 and 2003 Net income for the quarter ended September 30, 2004 was $1.7 million, or $.38 for basic and $.37 for diluted earnings per share. This compared to net income for the comparable period in 2003 of
$2.0 million, or $.41 for basic and $.39 for diluted earnings per share. Annualized return on average assets was .84% and return on average equity was 7.62% for the third quarter of 2004, compared to
..98% and 8.27%, respectively, for the same period last year. Interest income decreased $553,000, or 4.8%, from $11.5 million for the three months ended September 30, 2003 to $11.0 million for the three months ended September 30, 2004 due to a decrease in
the yield on average interest-earning assets from 6.24% for the 2003 period to 5.83% for the 2004 period. The decrease in average yield was partially offset by an increase in average interest-earning
assets from $739.0 million during the three months ended September 30, 2003 to $753.4 million during the third quarter in 2004. Interest expense decreased $328,000 or 7.0%, from $4.7 million for the
three months ended September, 2003, to $4.4 million for the three months ended September 30, 2004 due to a decrease in the average cost of interest-bearing liabilities from 2.71% for the 2003 period
to 2.44% for the 2004 period. The decrease in average cost was partially offset by an increase in the average interest-bearing liabilities from $694.2 million during the three months ended September
30, 2003 to $715.0 million during the comparable period in 2004. As a result, net interest income decreased $225,000 from $6.8 million for the three months ended September 30, 2003, to $6.6 million
for the three months ended September 30, 2004. The net interest margin decreased from 3.70% for the three-month period ended September 30, 2003, to 3.51% for the comparable period in 2004 as yields on interest-earning assets decreased at a
slightly faster rate than the decrease in the cost of interest-bearing liabilities. In addition, since September 30 of 2003, MutualFirst has repurchased over $12 million of its stock to
manage capital. An additional impact of these repurchases is to reduce net earning assets and therefore lower net interest income, while at the same time increasing earnings per share due to the decreased number of shares outstanding. The provision for loan losses for the third quarter of 2004 was $350,000 compared to $325,000 for last year's comparable period. Non-performing loans to total loans at September 30, 2004 were .57%
compared to .42% at September 30, 2003. Non-performing assets to total assets were .61% at September 30, 2004 compared to .52% at September 30, 2003. The reason for the increased loan loss provision
was due to an increase in charge offs (mentioned above) and an increase in classified loans when comparing the current quarter to the year ago quarter. Management believes loan loss reserves to be
adequate. Non-interest income increased $436,000 or 38.4%, to $1.6 million for the three months ended September 30, 2004 compared to $1.1 million for the same period in 2003. The increase was primarily due
to an increase in the gain on sale of loans of $201,000 in the third quarter of 2004 compared to the third quarter of 2003 which included a $320,000 valuation impairment allowance to mortgage
servicing rights. Also, service fee income and commissions were up $109,000 when comparing the current quarter to the year ago quarter due to an increased number of checking accounts outstanding and
increased sales of investment products. In September the Bank began offering overdraft privilege to its checking account customers and it is anticipated that this service will increase service fee
income over the next several quarters. In addition, equity in gains of limited partnerships was up $107,000 when compared to the year ago quarter due to higher occupancy rates and lower or deferred
operating expenses. These limited partnerships invest in low income housing projects which provide tax credits and a limited amount of cash flow to their equity owners. Management believes future
GAAP earnings on these projects will be negligible. Non-interest expense increased $441,000 or 8.8% to $5.5 million for the three months ended September 30, 2004 compared to $5.0 million for the same period in 2003. Salaries and employee benefits
were up $180,000, primarily due to a $73,000 increase in health insurance premiums and a $47,000 reduction of deferred compensation related to lower mortgage originations when comparing the two
quarters. Other expenses were up due to a new branch opening, increased software maintenance costs, increased operational charge offs and increased data processing costs. Income tax expense was little changed for the three months ended September 30, 2004 compared to the same period in 2003 due to lower taxable income being offset by a higher effective tax rate due
to less tax credits. Comparison of the Operating Results for the Nine-Months Ended September 30, 2004 and 2003. Net income for the nine months ended September 30, 2004 was $5.5 million or $1.17 for basic and $1.13 for diluted earnings per share. This compared to net income for the comparable period in 2003
of $6.4 million or $1.28 for basic and $1.24 for diluted earnings per share. Annualized return on assets was .90% and return on equity was 7.74% for the first nine months of 2004 compared to 1.09%
and 9.03% respectively, for the same period of last year. Interest income decreased $1.8 million, or 5.2% from $35.1 million for the nine months ended September 30, 2003 to $33.2 million for the nine months ended September 30, 2004 due to a decrease in
the yield on average interest-earning assets from 6.45% for the 2003 period to 5.90% for the 2004 period. The decrease in average yield was partially offset by an increase in average interest-earning
assets from $724.9 million during the nine months ended September 30, 2003 to $751.1 million during the same nine months in 2004. Interest expense decreased $1.5 million, or 10.6% from $14.5 million
for the nine months ended September 30, 2003 to $12.9 million for the same period in 2004 due to a decrease in the average cost of interest-bearing liabilities from 2.84% for the 2003 period to 2.44%
for the 2004 period. The decrease in average cost was partially offset by an increase in the average interest-bearing liabilities from $680.4 million during the nine months ended September 30, 2003
to $708.3 million during the comparable period in 2004. As a result, net interest income decreased $294,000 for the nine months ended September 30, 2004 compared to the nine months ended September
30, 2003. The net interest margin decreased from 3.78% for the nine-month period ended September 30, 2003, to 3.60% for the comparable period in 2004 as yields on interest-earning assets decreased at a
slightly faster rate than the decrease in the cost of interest-bearing liabilities. In addition, since September 30 of 2003, MutualFirst has repurchased over $12 million of its stock to
manage capital. An additional impact of these repurchases is to reduce net earning assets and therefore lower net interest income, while at the same time increasing earnings per share due to the decreased number of shares outstanding. Non-interest income for the nine months ended September 30, 2004 increased $48,000 from $4.5 million for the nine months ended September 30, 2003 to $4.6 million. An increase in the equity in
gains of limited partnerships (see discussion above) of $353,000 was partially offset by a lower increase in cash surrender value of life insurance of $290,000 in the 2004 period compared to the
comparable period in 2003 which included life insurance proceeds following the death of a former director. For the nine-month period non-interest expense was up $836,000 or 5.5% when comparing the first nine months of 2004 to the same period in 2003. The majority of this increase was due to a $473,000
increase in salaries and employee benefits which included a $189,000 increase in health insurance premium costs, a reduction of deferred compensation relating to lower mortgage originations of
$153,000, and a $113,000 increase in the cost of the RRP plan. Other expenses were up due to a new branch opening with an ATM, increased software maintenance costs, increased operational charge offs
due to several robberies and increased data processing costs. For the nine-month period ended September 30, 2004, income tax expense decreased $179,000 compared to the same period in 2003. The decrease was due primarily to decreased taxable income. Because
of lower tax credits the effective tax rate increased from 27.3% to 29.0% when comparing the two nine month periods ended September 30, 2003 and 2004, respectively. Recent Development On November 9, 2004, the Company announced that it had entered into a separation agreement with Steven L. Banks as Director and Senior Vice President of the Company and Director and Senior Vice President and Chief Operating Officer of Grant County for Mutual Federal Savings Bank. The effective date is November 12, 2004. Mr. Banks had served in those capacities since the merger of Marion Capital Holdings with MutualFirst Financial, Inc. in December, 2000. In accordance with the terms of the agreement, Mr. Banks will receive a payment for the remaining term of his Employment Agreement and the required payments under the Supplemental Retirement Agreements entered into prior to the merger in 2000. The total of these payments will reduce fourth quarter after-tax earnings by approximately $1.7 million or $.36 on a per share basis. Liquidity and Capital Resources The standard measure of liquidity for savings associations is the ratio of cash and eligible investments to a certain percentage of the net-withdrawable savings accounts and borrowings due within
one year. As of September 30, 2004, Mutual Federal had liquid assets of $54.1 million and a liquidity ratio of 7.56 %. ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk Presented below as of September 30, 2004 and 2003 is an analysis of Mutual Federal's interest rate risk as measured by changes in Mutual Federal's net portfolio value ("NPV") assuming an
instantaneous and sustained parallel shift in the yield curve, in 100 basis point increments. September 30, 2004
September 30, 2003
(1) Not meaningful because some market rates would compute to a rate less than zero. The analysis at September 30, 2004 indicates that there have been no material changes in market interest rates for Mutual Federal's interest rate sensitivity instruments which would cause a
material change in the market risk exposures that effect the quantitative and qualitative risk disclosures as presented in item 7A of the Company's annual report on Form 10-K for the period ended
December 31, 2003. Item 4. Controls and Procedures. The Company intends to continually review and evaluate the design and effectiveness of its disclosure controls and procedures and to improve its controls and procedures over time and to correct
any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company's
business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to
modify its disclosure controls and procedures.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 2004 OR[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM - TOCommission File Number: 000-27905 MutualFirst Financial, Inc.
(Exact Name of registrant specified in its charter)Maryland
(State or other jurisdiction of
incorporation or organization)35-2085640
(I.R.S. Employer
Identification Number)110 East Charles Street
Muncie, Indiana 47305
(765) 747-2800
(Registrant's telephone number, including area code)
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Page
Number
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Condensed Balance Sheets
3
Consolidated Condensed Statements of Income
4
Consolidated Condensed Statement of Stockholders' Equity
5
Consolidated Condensed Statements of Cash Flows
6
Notes to Unaudited Consolidated Condensed Financial Statements
7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
9
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
15
Item 4.
Controls and Procedures
16
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
16
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
16
Item 3.
Defaults Upon Senior Securities
17
Item 4.
Submission of Matters to a Vote of Security Holders
17
Item 5.
Other Information
17
Item 6.
Exhibits
17
Certifications
Exhibit 31.1
Exhibit 31.2
Exhibit 32
Consolidated Condensed Balance Sheets
September 30,
December 31,
2004
2003
(Unaudited)
Assets
Cash
$17,187,719
$21,073,754
Interest-bearing deposits
661,013
1,994,032
Cash and cash equivalents
17,848,732
23,067,786
Investment securities available for sale
39,639,658
33,471,986
Loans held for sale
1,371,361
1,975,277
Loans
713,051,365
710,760,014
Allowance for loan losses
(7,023,441)
(6,779,218)
Net loans
706,027,924
703,980,796
Premises and equipment
12,054,374
10,070,804
Federal Home Loan Bank of Indianapolis stock, at cost
7,873,800
7,264,200
Investment in limited partnerships
5,092,222
5,087,752
Cash surrender value of life insurance
26,900,357
26,140,357
Foreclosed real estate
284,680
596,740
Interest receivable
3,168,104
3,193,848
Core deposit intangibles and goodwill
897,447
907,739
Deferred income tax benefit
4,051,024
3,846,184
Other assets
4,932,462
4,187,369
Total assets
$830,142,145
$823,790,838
Liabilities
Deposits
Non-interest-bearing
$37,527,450
$32,137,746
Interest bearing
550,011,421
547,224,644
Total deposits
587,538,871
579,362,390
Federal Home Loan Bank advances
133,963,290
134,592,151
Other borrowings
4,381,026
2,510,568
Advances by borrowers for taxes and insurance
1,937,015
1,448,488
Interest payable
1,235,422
851,487
Other liabilities
11,354,899
7,505,622
Total liabilities
740,410,523
726,270,706
Commitments and Contingent Liabilities
Stockholders' Equity
Preferred stock, $.01 par value
Authorized and unissued --- 5,000,000 shares
Common stock, $.01 par value
Authorized --- 20,000,000 shares
Issued and outstanding ---4,781,778 and 5,293,155 shares
47,819
52,932
Additional paid-in capital
34,970,824
38,052,080
Retained earnings
58,274,549
63,409,374
Accumulated other comprehensive income
(22,358)
233,738
Unearned employee stock ownership plan (ESOP) shares
(2,939,886)
(3,178,266)
Unearned recognition and retention plan (RRP) shares
(599,326)
(1,049,726)
Total stockholders' equity
89,731,622
97,520,132
Total liabilities and stockholders' equity
$830,142,145
$823,790,838
Consolidated Condensed Statements of Income
(Unaudited)
Three Months Ended
Nine Months Ended
September 30
September 30
2004
2003
2004
2003
Interest Income
Loans receivable, including fees
$10,619,873
$11,200,320
$32,068,611
$33,832,520
Investment securities:
Mortgage-backed securities
102,862
67,939
341,367
368,148
Federal Home Loan Bank stock
81,327
80,067
250,642
274,005
Other investments
170,038
171,502
540,818
534,024
Deposits with financial institutions
4,937
12,534
22,217
51,640
Total interest income
10,979,037
11,532,362
33,223,655
35,060,337
Interest Expense
Passbook savings
39,682
53,334
116,661
238,295
Certificates of deposit
2,854,568
3,133,980
8,453,799
9,673,032
Daily Money Market accounts
172,942
117,548
431,395
370,591
Demand and NOW acounts
32,953
48,931
101,789
148,141
Federal Home Loan Bank advances
1,252,500
1,327,198
3,795,274
4,011,648
Other interest expense
15,606
15,606
46,818
46,818
Total interest expense
4,368,251
4,696,597
12,945,736
14,488,525
Net Interest Income
6,610,786
6,835,765
20,277,919
20,571,812
Provision for losses on loans
350,000
325,000
1,106,500
1,075,000
Net Interest Income After Provision for Loan Losses
6,260,786
6,510,765
19,171,419
19,496,812
Other Income
Service fee income
806,014
744,732
2,251,265
2,191,642
Net realized loss on sale of available-for-sale securities
0
0
(2,817)
0
Equity in gains (losses) of limited partnerships
68,831
(37,669)
90,491
(262,280)
Commissions
225,219
177,641
522,209
527,896
Net gains (losses) on loan sales and servicing
151,643
(49,653)
763,611
873,113
Increase in cash surrender value o life insurance
255,000
254,000
760,000
1,049,542
Other income
63,056
44,777
193,407
149,885
Total other income
1,569,763
1,133,828
4,578,166
4,529,798
Other Expenses
Salaries and employee benefits
3,304,080
3,123,622
10,073,376
9,600,599
Net occupancy expenses
296,754
290,523
848,438
843,082
Equipment expenses
298,818
292,995
827,092
790,520
Data processing fees
178,982
139,660
525,710
449,334
Automated teller machine
151,897
124,788
453,502
359,135
Deposit insurance expense
20,965
22,052
65,006
67,266
Advertising and promotion
207,509
203,021
449,454
525,552
Other expenses
999,641
821,169
2,755,813
2,526,880
Total other expenses
5,458,646
5,017,830
15,998,391
15,162,368
Income Before Income Tax
2,371,903
2,626,763
7,751,194
8,864,242
Income tax expense
647,550
644,050
2,245,200
2,424,100
Net Income
$1,724,353
$1,982,713
$5,505,994
$6,440,142
Basic earnings per share
$0.38
$0.41
$1.17
$1.28
Diluted earnings per share
$0.37
$0.39
$1.13
$1.24
Dividends per share
$0.12
$0.11
$0.35
$0.31
Consolidated Condensed Statement of Stockholders' Equity
For the Nine Months Ended September 30, 2004
(Unaudited)
Common Stock
Accumulated
Additional
Other
Unearned
Unearned
Shares
paid-in
Comprehensive
Retained
Comprehensive
ESOP
RRP
Outstanding
Amount
capital
Income
Earnings
Income
shares
shares
Total
Balances, December 31, 2003
5,293,155
$52,932
$38,052,080
$63,409,374
$233,738
($3,178,266)
($1,049,726)
$97,520,132
Comprehensive income
Net income for the period
$5,505,994
$5,505,994
5,505,994
Other comprehensive income,
net of tax
Net unrealized losses
on securities
(256,096)
(256,096)
(256,096)
Comprehensive income
$5,249,898
ESOP shares earned
321,698
238,380
560,078
Cash dividends ($.35 per share)
(1,784,665)
(1,784,665)
RRP shares earned
450,400
450,400
Stock repurchased and retired
(535,852)
(5,358)
(3,757,597)
(8,856,154)
(12,619,109)
Stock options exercised
24,475
245
354,643
354,888
Balances, September 30, 2004
4,781,778
$47,819
$34,970,824
$58,274,549
($22,358)
($2,939,886)
($599,326)
$89,731,622
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
September 30
2004
2003
Operating Activities
Net income
$5,505,994
$6,440,142
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses
1,106,500
1,075,000
Securities losses
2,817
10,454
Net loss on disposal of premise and equipment
4,068
230
Net loss on sale of real estate owned
113,412
126,805
Securities amortization (accretion), net
211,658
353,591
ESOP shares earned
560,078
544,545
RRP shares earned
450,400
337,500
Equity in (gains) losses of limited partnerships
(90,491)
262,280
Amortization of net loan origination costs
1,220,213
1,112,179
Amortization of core deposit intangibles and goodwill
10,292
10,292
Depreciation and amortization
800,529
772,414
Deferred income tax
(34,109)
Loans originated for sale
(20,314,924)
(39,573,534)
Proceeds from sales on loans held for sale
36,850,735
46,266,884
Gains on sales of loans held for sale
(638,809)
(1,193,113)
Change in
Interest receivable
25,744
(30,361)
Other assets
(745,091)
(763,198)
Interest payable
383,935
180,483
Other liabilities
3,947,943
1,435,743
Net change in cash surrender value of life insurance
(760,000)
(407,049)
Other adjustments
Net cash provided by operating activities
28,610,894
16,961,287
Investing Activities
Purchases of securities available for sale
(19,092,967)
(8,108,837)
Proceeds from maturities and paydowns of securities available for sale
8,880,972
8,941,306
Proceeds from sales of securities available for sale
3,403,019
10,298,656
Net change in loans
(20,285,096)
(56,029,295)
Purchases of premises and equipment
(2,788,167)
(1,332,036)
Proceeds from real estate owned sales
816,817
1,450,341
Purchase of FHLB of Indianapolis stock
(609,600)
(180,700)
Purchase of interest in limited partnership
(500,000)
Distribution from limited partnership
86,022
666,091
Other investing activities
148,821
Net cash used by investing activities
(29,589,000)
(44,645,653)
Financing Activities
Net change in
Noninterest-bearing, interest bearing demand and savings deposits
17,599,725
13,501,576
Certificates of deposits
(9,423,244)
12,181,363
Repayment of note payable
(427,560)
(435,487)
Proceeds from FHLB advances
178,700,000
77,000,000
Repayment of FHLB advances
(179,380,710)
(67,880,184)
Net change in other borrowings
2,251,200
-
Net change in advances by borrowers for taxes and insurance
488,527
2,258,926
Stock repurchase
(12,619,109)
(6,117,622)
Proceeds from exercise of stock options
354,888
314,650
Cash Dividends
(1,784,665)
(1,595,054)
Net cash provided by financing activities
(4,240,948)
29,228,168
Net Change in Cash and Cash Equivalents
(5,219,054)
1,543,802
Cash and Cash Equivalents, Beginning of Year
23,067,786
23,619,957
Cash and Cash Equivalents, End of Period
$17,848,732
$25,163,759
Additional Cash Flows Information
Interest paid
$12,561,801
$14,308,042
Income tax paid
1,672,000
2,220,000
Transfers from loans to foreclosed real estate
618,169
970,598
Loans transferred to loans held for sale
15,293,086
Mortgage servicing rights capitalized
365,776
449,750
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three Months Ended
Nine Months Ended
September 30, 2004
September 30, 2003
September 30, 2004
September 30, 2003
Net income, as reported
$1,724
$1,983
$5,506
$6,440
Less: Total stock-based employee
compensation cost determined under
the fair value based method, net of
income taxes($26)
($39)
($78)
($117)
Pro forma net income
$1,698
$1,944
$5,428
$6,323
Earnings per share:
Basic - as reported
$0.38
$0.41
$1.17
$1.28
Basic - proforma
$0.37
$0.40
$1.16
$1.26
Diluted - as reported
$0.37
$0.39
$1.13
$1.24
Diluted - proforma
$0.36
$0.38
$1.12
$1.22
Three Months Ended Ended September 30,
2004
2003
Income
Weighted-
Average
SharesPer-Share
Amount
Income
Weighted-
Average
SharesPer-Share
Amount
(000's)
(000's)
Basic Earnings Per Share
Income available to common shareholders
$1,724
4,557,861
$0.38
$1,983
4,876,306
$0.41
Effect of Dilutive securities
Stock options and RRP grants
141,002
194,438
Diluted Earnings Per Share
Income available to common stockholders and assumed
conversions
$1,724
4,698,863
$0.37
$1,983
5,070,744
$0.39
Nine Months Ended Ended September 30,
2004
2003
Income
Weighted-
Average
SharesPer-Share
Amount
Income
Weighted-
Average
SharesPer-Share
Amount
(000's)
(000's)
Basic Earnings Per Share
Income available to common shareholders
$5,506
4,695,246
$1.17
$6,440
5,014,673
$1.28
Effect of Dilutive securities
Stock options and RRP grants
156,275
174,523
Diluted Earnings Per Share
Income available to common stockholders and assumed
conversions$5,506
4,851,521
$1.13
$6,440
5,189,196
$1.24
Net Portfolio Value
Changes
In Rates$ Amount
$ Change
% Change
NPV as % of
PV of Assets
NPV RatioChange
+300 bp
67,780
-29,331
-30%
8.78%
-290 bp
+200 bp
78,746
-18,365
-19%
9.95%
-173 bp
+100 bp
89,079
-8,032
-8%
10.97%
-70 bp
0 bp
97,111
11.68%
-100 bp
98,442
1,331
1%
11.62%
-6 bp
-200 bp
n/m(1)
n/m(1)
n/m(1)
n/m(1)
n/m(1)
-300 bp
n/m(1)
n/m(1)
n/m(1)
n/m(1)
n/m(1)
Net Portfolio Value
Changes
In Rates$ Amount
$ Change
% Change
NPV as % of
PV of Assets
NPV RatioChange
+300 bp
61,224
-37,218
-34%
8.12%
-314 bp
+200 bp
73,122
-25,320
-21%
9.43%
-183 bp
+100 bp
83,495
-14,947
-9%
10.48%
-78 bp
0 bp
92,140
11.26%
-100 bp
91,389
-7,053
-1%
10.97%
-29 bp
-200 bp
n/m (1)
n/m (1)
n/m (1)
n/m (1)
n/m (1)
-300 bp
n/m (1)
n/m (1)
n/m (1)
n/m (1)
n/m (1)
(a)
An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a -15(c) under the Securities Exchange Act of 1934 (the "Act") was carried out under the supervision and
with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management. The Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and procedure as currently in effect are effective in ensuring that the information required to be disclosed by the Company in the
reports it files or submits under the act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and the Chief Financial Officer) in a timely manner,
and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There have been no changes in our internal control over financial reporting (as
defined in Rule 13a - 15(f) under the act) that occurred during the quarter ended September 30, 2004 that has materially affected, or is likely to materially affect our internal control over
financial reporting.
PART II.
OTHER INFORMATION
Item 1.
Legal Proceedings
None.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
On March 10, 2004 the Company's Board of Directors authorized management to repurchase an additional 10% of the Company's outstanding stock, or approximately 520,000 shares over a
twelve-month period. Information on the shares purchased during the third quarter of 2004 is as follows.
Total Number of
Shares PurchasedAverage Price
Per ShareTotal Number of
Shares Purchased
As Part of Publicly
Announced PlanMaxiumum Number of
Shares that May Yet
Be Purchased
Under the Plan
284,736(1)
July 1, 2004 - July 31, 2004
20,000
$21.91
20,000
264,736
August 1, 2004 - August 31, 2004
20,000
22.88
20,000
244,736
September 1, 2004 - September 30, 2004
128,733
23.92
128,733
116,003
168,733
$23.56
168,733
(1) Amount represents the number of shares available to be repurchased under the plan as of June 30, 2004
Item 3. | Defaults Upon Senior Securities. | |
None. | ||
Item 4. | Submission of Matters to Vote of Security Holders. | |
None. | ||
Item 5. | Other Information. | |
None. | ||
Item 6. | Exhibits | |
(a) | Exhibits | |
Exhibits 31 - Rule 13a - 14(a) Certifications | ||
Exhibit 32 - Certificate of the Chief Executive Officer and Chief Financial Officer pursuant to U. S. C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2003. | ||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MutualFirstFinancial, Inc. | ||
Date: November 9, 2004 | By: | /s/ David W. Heeter David W. Heeter President and Chief Executive Officer |
Date: November 9, 2004 | By: | /s/ Timothy J. McArdle Timothy J. McArdle Senior Vice President and Treasurer |
EXHIBIT 31.1
Rule 13a - 14(a) CERTIFICATIONS
I, David W. Heeter certify that:
1. | I have reviewed this report on Form 10-Q of MutualFirst Financial, Inc. (the "Registrant"); | |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; | |
4. | The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(c) and 15d-15(e) ) for the Registrant and we have: | |
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report; and | ||
c) disclosed in this report any changes in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the Registrant's internal control over financial reporting. | ||
5. | The Registrant's other certifying officer and I have disdisclosed, based on our most recent evaluation to the Registrant's auditors and the audit committee of Registrant's board of directors (over financial reporting or persons performing the equivalent function): | |
a) all significant deficiencies and material weaknesses in the design or operation of internal control which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and | ||
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. |
Date: November 9, 2004
EXHIBIT 31.2
Rule 13a - 14(a) CERTIFICATIONS
I, Timothy J. McArdle, certify that:
1. | I have reviewed this report on Form 10-Q of MutualFirst Financial, Inc. (the "Registrant"); | |
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the consolidated financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; | |
4. | The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(c) and 15d-15(e) ) for the Registrant and we have: | |
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report; and | ||
c) disclosed in this report any changes in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the Registrant's internal control over financial reporting. | ||
5. | The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation to the Registrant's auditors and the audit committee of Registrant's board of directors (over financial reporting or persons performing the equivalent function): | |
a) all significant deficiencies and material weaknesses in the design or operation of internal control which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and | ||
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. |
Date: November 9, 2004
EXHIBIT 32
CERTIFICATION REQUIRED BY SECTION 1350 OF
TITLE 18 OF THE UNITED STATES CODE
Each of the undersigned hereby certifies in his capacity as an officer of MutualFirst Financial, Inc. (the "Registrant") that the Quarterly Report of the Registrant on Form 10-Q, for the period ended September 30, 2004, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the consolidated financial condition and the results of operations of the Registrant as of the dates and for the periods presented in the financial statements included in such report.
Date: November 9, 2004 | /s/ David W. Heeter David W. Heeter, President and Chief Executive Officer |
Date: November 9, 2004 | /s/ Timothy J. McArdle Timothy J. McArdle, Senior Vice President, Treasurer, and Chief Financial Officer |