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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 March 31, 2005, was 4,673,444. FORM 10 - Q MutualFirst Financial, Inc. INDEX Signature Page PART I FINANCIAL INFORMATION
MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY See notes to consolidated condensed financial statements.
MUTUALFIRST FINANCIAL, INC. AND SUBSIDIARY
(Unaudited)
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 2004 filed with the Securities
and Exchange Commission. The interim consolidated financial statements at March 31, 2005 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, 2004
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, 2004 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: (Dollars in thousands except per share data) Note 3: Effect of Recent Accounting Pronouncements On April 14, 2005 the SEC issued an amendment to SFAS No. 123(R), which allows companies to implement SFAS 123(R) at the beginning of their next fiscal year, instead of the next reporting period, that begins after June 15, 2005. The new rule does not change the dates for compliance with the standard. Early adoption is permitted in periods in which financial statements have not yet been issued. The company expects to adopt SFAS No. 123(R) on January 1, 2006. 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. The following should be read in conjunction with the Management's Discussion and
Analysis in the Company's December 31, 2004 Annual Report on Form 10-K. Critical Accounting Policies The notes to the consolidated financial statements contain a summary of the Company's
significant accounting policies presented on pages 62 to 65 of the Annual Report to
Shareholders for the year ended December 31, 2004. 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 earning 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 36% over this time period. These are ongoing strategies that are dependent on
current market conditions and competition. During the first three months of 2005, in keeping with its strategic objective to reduce
interest rate risk exposure, the Company also sold $4.3 million of long term fixed rate
loans that had been held for sale, 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 $69,000 in the first three months of this
year. Recent increases in short-term interest rates, as a result of increases in the Federal Funds
rate by the Board of Governors of the Federal Reserve System, without a corresponding
increase in long-term interest rates will result in an increase in interest expense and a
reduction in net interest income in 2005. The effect of the flattening yield curve is to
increase our cost of funds at a faster rate than our yield on loans and investments, due to
the longer-term nature of our interest earning assets. In 2005, as we increase our
investment in business-related loans, which are considered to entail greater risks than
one-to-four-family residential loans, in order to help offset the pressure on our net interest
margin, our provision for loan losses may increase to reflect this increased risk. 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 three months of 2005, the Company used $1.6 million for this purpose, thereby
reducing earning assets from where they otherwise would have been and correspondingly
reducing net interest income. 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. The Company is in the process of
expanding through the addition of a new branch office in Syracuse, Indiana in Kosciusko
County and the recent purchase of land in Elkhart County, located in northern Indiana, for
the purpose of building a new branch office in that vibrant market. The Company is also
in the process of developing a new Investment Management and Private Banking
Division in order to better service clients with more specialized financial needs. In
addition, Mutual Federal Savings Bank, the banking subsidiary of the Company,
announced in March of this year that it had entered into a definitive agreement to
purchase assets and assume liabilities representing the operations of Fidelity Federal
Savings Bank of Marion ("Fidelity"). The intent of all these initiatives is to increase
income over the long term. However, on a short term basis, expenses relating to the new
branches and new division will have the affect of increasing non interest expense with no
immediate offsetting income. The purchase of Fidelity (assumed to close in the third
quarter of this year) should be accretive to income in the quarter immediately following
closing due to substantial cost saves. Financial Condition Assets totaled $841.6 million at March 31, 2005, an increase from December 31, 2004 of
$2.2 million, or .3%. Gross loans, excluding loans held for sale, increased $324,000, or
..1%. Consumer loans decreased $285,000, or .2%, and commercial business loans
increased $680,000, or 1.3%, while residential and commercial mortgage loans held in
the portfolio decreased $1.1 million, or .2%. Mortgage loans held for sale increased
$193,000 and mortgage loans sold during the quarter totaled $4.3 million compared to
$19.6 million sold in the first quarter of last year. The decrease in consumer loans
(primarily auto loan related) can be attributed to the increasing interest rate environment,
cyclical slowdown in activity and a very competitive market place, 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 three months of the year, totaling $4.3 million, in order to reduce our interest rate
risk exposure. Investment securities available for sale increased $1.1 million or 2.7% in
order to maintain liquidity targets. Premises and equipment increased $1.2 million or 8.9% due to the purchase of land for
the purpose of building a new branch office in Elkhart county and current construction
costs of the new Syracuse, Indiana office expected to be completed in June of this year. Allowance for loan losses was $6.7 million at March 31, 2005, down $130,000 from
December 31, 2004. Net charge offs for the quarter ended March 31, 2005 were $574,000
or .32% of average loans on an annualized basis compared to $207,000, or .13% of
average loans for the comparable period in 2004. The increase in net charge offs was due
primarily to the charge off of one non-performing commercial loan totaling $240,000. As
of March 31, 2005, the allowance for loan losses as a percentage of non-performing loans
and total loans was 149.74% and .94%, respectively, compared to 172.30% and .95%,
respectively at December 31, 2004. Total deposits were $599.3 million at March 31, 2005, a decrease of $1.0 million, or .2%
from December 31, 2004. This decrease was due primarily to a reduction of volatile short
term public deposits of $12.1 million. These public deposits are continuously bid out by
the various public entities in our markets and the loss of deposits in the first quarter is
more cyclical in nature and does not represent a loss of accounts. This decrease was
partially offset by growth in core demand and savings deposits of $2.1 million and growth
in retail certificates of deposit of $8.9 million due to more aggressive pricing in order to
maintain existing large balances of maturing IRA deposits. Many of these deposits carried
substantially higher rates than current market rates and therefore this strategy reduced our
cost of these funds going forward and also attracted new deposits. Total borrowings
increased $1.4 million to $143.0 million at March 31, 2005 from $141.6 million at
December 31, 2004 due to several new FHLB advances. Stockholders' equity decreased slightly from $87.9 million at December 31, 2004, to
$87.8 million at March 31, 2005. The decrease was due primarily to the repurchase of
65,000 shares of common stock for $1.6 million and dividend payments of $612,000.
Also, unrealized loss on securities available for sale increased $158,000 from $89,000 at
December 31, 2004 to $247,000 at March 31, 2005. These decreases were partially offset
by net income of $1.6 million, Employee Stock Ownership Plan (ESOP) shares earned of
$191,000, RRP shares earned of $64,000 and options exercised netting $431,000. Comparison of the Operating Results for the Three Months Ended March 31, 2005 and
2004 Net income for the first quarter ended March 31, 2005 was $1.6 million, or $.37 for basic
and $.36 for diluted earnings per share. This compared to net income for the same period
in 2004 of $2.0 million, or $.41 for basic and $.40 for diluted earnings per share.
Annualized return on assets was .77% and return on equity was 7.39% for the first quarter
of 2005 compared to .96% and 8.08% respectively, for the same period of last year. Net interest income before provision for loan losses decreased 1.5% from $6.8 million for
the three months ended March 31, 2004 to $6.7 million for the three months ended March
31, 2005. The interest rate spread decreased from 3.50% for the three-month period ended
March 31, 2004, to 3.37% for the comparable period in 2005 as yields on interest-earning
assets decreased more than the decrease in the cost of interest-bearing liabilities. This
lower spread was partially offset by an $18.4 million increase in average interest-earning
assets when comparing the first quarter of 2005 to that of 2004. The provision for loan losses for the first quarter of 2005 was $444,000, up from
$227,000 for last year's comparable period. The increase was due to increased charge offs
and an increase in non-performing loans. Non-performing loans to total loans at March
31, 2005 were .62% compared to .56% at March 31, 2004. Non-performing assets to
total assets were .69% at March 31, 2005 compared to .62% at March 31, 2004. Non-interest income was unchanged at $1.5 million for the three months ended March 31,
2005 compared to the same period in 2004. Increases in service fee and commission
income due to a new overdraft privilege program and an increase in annuity and mutual
fund sales were offset by a decrease in gain on sale of loans as mortgage activity slowed
due to an increase in market rates of interest. The gain on sale of loans included an
$80,000 reduction of reserves on mortgage servicing rights due to a slight increase in
mortgage rates and a corresponding slowdown in mortgage prepayments. As a result, the
reserves on mortgage servicing rights were $100,000 at March 31, 2005. Non-interest expense increased $207,000 or 3.9% to $5.5 million for the three months
ended March 31, 2005 compared to $5.3 million for the same period in 2004. The
increase was due primarily to increased occupancy and equipment expenses which were
up $108,000 due to costs related to a new office opened in May 2004 and the relocation
of our corporate and investment management and private banking staffs to a recently
purchased office building located next to our main office in Muncie. Other expenses
increased $77,000 due to increases in legal and consulting services of $48,000 primarily
related to Sarbanes-Oxley regulatory compliance requirements and other general and
administrative expense increases. Income tax expense decreased $225,000 for the three months ended March 31, 2005
compared to the same period in 2004 due to less taxable income. The effective tax rate
decreased from 29.8% to 27.5% due to increased low income housing tax credits when
comparing the first quarter of 2004 and the first quarter of 2005, respectively. 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 March 31, 2005, Mutual Federal had liquid assets
of $59.4 million and a liquidity ratio of 8.05 %. It is anticipated that this level of liquidity
will be adequate for the remainder of 2005. ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk Presented below as of March 31, 2005 and 2004 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. (1) Not meaningful because some market rates would compute to a rate less than zero. The analysis at March 31, 2005 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, 2004. 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 MARCH 31, 2005 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
14
Item 4.
Controls and Procedures
15
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
15
Item 2.
Registered Sales of Equity Securities and Use of Proceeds
15
Item 3.
Defaults Upon Senior Securities
16
Item 4.
Submission of Matters to a Vote of Security Holders
16
Item 5.
Other Information
16
Item 6.
Exhibits
16
Certifications
Exhibit 31.1
Exhibit 31.2
Exhibit 32
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets
March 31,
December 31,
2005
2004
(Unaudited)
Assets
Cash
$17,159,197
$19,275,332 Interest-bearing deposits
125,410
468,044 Cash and cash equivalents
17,284,607
19,743,376 Investment securities available for sale
40,462,228
39,408,978 Loans held for sale
3,106,406
2,913,150 Loans
720,213,022
719,888,598 Allowance for loan losses
(6,737,284)
(6,866,910) Net loans
713,475,738
713,021,688 Premises and equipment
13,389,446
12,191,117 Federal Home Loan Bank of Indianapolis
stock, at cost
8,042,400
7,957,700 Investment in limited partnerships
4,979,835
5,025,378 Cash surrender value of life insurance
27,355,357
27,090,357 Foreclosed real estate
550,213
340,113 Interest receivable
3,210,551
3,038,557 Core deposit intangibles and goodwill
890,586
894,016 Deferred income tax benefit
4,186,244
4,003,199 Other assets
4,642,298
3,759,628
Total assets
$841,575,909
$839,387,257
Liabilities
Deposits
Non-interest-bearing
$38,673,259
$39,999,427 Interest bearing
560,691,188
560,407,685 Total deposits
599,364,447
600,407,112 Federal Home Loan Bank advances
140,884,507
139,426,777 Other borrowings
2,130,359
2,145,432 Advances by borrowers for taxes and
insurance
2,295,442
1,578,522 Interest payable
1,053,337
1,025,017 Other liabilities
8,016,355
6,944,254 Total liabilities
753,744,447
751,527,114
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 - 4,673,444 and
4,708,318 shares46,734
47,084 Additional paid-in capital
34,341,957
34,385,254 Retained earnings
56,855,303
56,826,053 Accumulated other comprehensive loss
(246,515)
(88,646) Unearned employee stock ownership plan (ESOP) shares
(2,780,966)
(2,860,426) Unearned recognition and retention plan (RRP) shares
(385,051)
(449,176) Total stockholders' equity
87,831,462
87,860,143
Total liabilities and stockholders' equity
$841,575,909
$839,387,257
Consolidated Condensed Statements of Income
Three Months Ended
March 31
2005
2004 Interest Income
Loans receivable, including fees
$10,786,684
$10,788,709 Investment seurities:
Mortgage-backed securities
130,310
122,155 Federal Home Loan Bank stock
84,798
91,277 Other investments
228,483
181,560 Deposits with financial institutions
6,570
12,953 Total interest income
11,236,845
11,196,654 Interest Expense
Passbook savings
39,746
37,486 Certificates of deposit
3,019,905
2,844,825 Daily Money Market accounts
165,507
120,091 Demand and NOW acounts
33,318
33,493 Federal Home Loan Bank advances
1,288,447
1,315,098 Other interest expense
15,606
15,606 Total interest expense
4,562,529
4,366,599 Net Interest Income
6,674,316
6,830,055 Provision for losses on loans
443,750
226,500 Net Interest Income After Provision for Loan Losses
6,230,566
6,603,555
Other Income
Service fee income
885,772
701,761 Net realized loss on sale of available-for-sale securities
(762)
0 Equity in gains (losses) of limited partnerships
(16,869)
2,831 Commissions
213,588
142,709 Net gains on loan sales and servicing
149,168
395,195 Increase in cash surrender value of life insurance
265,000
258,000 Other income
40,469
39,962 Total other income
1,536,366
1,540,458
Other Expenses
Salaries and employee benefits
3,406,037
3,439,743 Net occupancy expenses
348,784
292,738 Equipment expenses
313,129
261,347 Data processing fees
194,120
197,062 Automated teller machine
160,304
143,521 Deposit insurance expense
20,840
22,010 Advertising and promotion
138,757
95,006 Other expenses
967,019
890,105 Total other expenses
5,548,990
5,341,532 Income Before Income Tax
2,217,942
2,802,480 Income tax expense
610,000
834,550 Net Income
$1,607,942
$1,967,930 Basic earnings per share
$0.37
$0.41 Diluted earnings per share
$0.36
$0.40 Dividends per share
$0.13
$0.11
Consolidated Condensed Statement of Stockholders' Equity
For the Three Months Ended March 31, 2005
(Unaudited)
Accumulated
Common Stock
Additional
Other
Unearned
Unearned
Shares
paid-in
Comprehensive
Retained
Comprehensive
ESOP
RRP
Outstanding
Amount
capital
Income
Earnings
Loss
shares
shares
Total Balances, December 31, 2004
4,708,318
$47,084
$34,385,254
$56,826,053
($88,646)
($2,860,426)
($449,176)
$87,860,143 Comprehensive income
Net income for the period
$1,607,942
$1,607,942
1,607,942 Other comprehensive income, net of tax
Net unrealized losses on securities
(157,868)
(157,868)
(157,868) Comprehensive income
$1,450,074
ESOP shares earned
111,478
79,460
190,938 Cash dividends ($.13 per share)
(611,674)
(611,674) RRP shares earned
64,125
64,125 Stock repurchased and retired
(64,574)
(647)
(585,129)
(967,019)
(1,552,794) Stock options exercised
29,700
297
430,353
430,650 Balances, March 31, 2005
4,673,444
$46,734
$34,341,957
$56,855,302
($246,514)
($2,780,966)
($385,051)
$87,831,462
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31
2005
2004 Operating Activities Net income
$1,607,942
$1,967,930 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses
443,750
226,500 Securities gains
762
- Net loss on sale of real estate owned
-
67,673 Securities amortization (accretion), net
47,026
75,316 ESOP shares earned
190,938
197,454 RRP shares earned
64,125
150,100 Equity in losses of limited partnerships
16,869
(2,831) Amortization of net loan origination costs
399,377
380,555 Amortization of core deposit intangibles and goodwill
3,430
3,430 Depreciation and amortization
298,947
264,895 Deferred income tax
(77,800)
- Loans originated for sale
(4,415,030)
(4,466,849) Proceeds from sales on loans held for sale
4,301,075
19,762,186 Gains on sales of loans held for sale
(79,301)
(395,195) Change in Interest receivable
(171,994)
98,439 Other assets
(879,165)
(239,692) Interest payable
28,320
307,437 Other liabilities
1,087,707
621,489 Net change in cash surrender value of life insurance
(265,000)
(258,000) Net cash provided by operating activities
2,601,978
18,760,837 Investing Activities Purchases of securities available for sale
(3,597,925)
(9,963,184) Proceeds from maturities and paydowns of securities available for sale
1,149,331
2,569,394 Proceeds from sales of securities available for sale
1,084,444
772,035 Net change in loans
(1,535,994)
3,220,192 Purchases of premises and equipment
(1,497,276)
(1,635,813) Proceeds from real estate owned sales
28,717
121,327 Purchase of FHLB of Indianapolis stock
(84,700)
(91,200) Distribution from limited partnership
25,168
28,674 Net cash used by investing activities
(4,428,235)
(4,978,575) Financing Activities Net change in Noninterest-bearing, interest bearing demand and savings deposits
1,325,725
13,427,866 Certificates of deposits
(2,368,390)
(19,856,070) Repayment of note payable
(30,679)
(30,679) Proceeds from FHLB advances
80,200,000
21,500,000 Repayment of FHLB advances
(78,742,270)
(30,500,000) Net change in advances by borrowers for taxes and insurance
716,920
971,911 Stock repurchased
(1,552,794)
(2,551,339) Proceeds from exercise of stock options
430,650
125,788 Cash Dividends
(611,674)
(574,794) Net cash provided by financing activities
(632,512)
(17,487,317) Net Change in Cash and Cash Equivalents
(2,458,769)
(3,705,055) Cash and Cash Equivalents, Beginning of Year
19,743,376
23,067,786 Cash and Cash Equivalents, End of Period
$17,284,607
$19,362,731 Additional Cash Flows Information Interest paid
$ 4,534,209
$ 4,059,163 Income tax paid
100,000
410,000 Transfers from loans to foreclosed real estate
238,817
224,067 Loans transferred to loans held for sale
15,293,086 Mortgage servicing rights capitalized
42,645
195,626
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three Months Ended
March 31, 2005
March 31, 2004 Net income, as reported
$1,607
$1,968 Less: Total stock-based employee
compensation cost determined under
the fair value based method, net of
income taxes(26)
(26) Pro forma net income
$1,581
$1,942 Earnings per share: Basic - as reported
$0.37
$0.41 Basic - proforma
$0.36
$0.40 Diluted - as reported
$0.36
$0.40 Diluted - proforma
$0.35
$0.39
Three Months Ended Ended March 31,
2005
2004
Weighted-
Weighted-
Average
Per-Share
Average
Per-Share
Income
Shares
Amount
Income
Shares
Amount
(000's)
(000's) Basic Earnings Per Share Income available to common shareholders
$1,607
4,366,150
$0.37
$1,968
4,797,668
$0.41 Effect of Dilutive securities Stock options and RRP grants
135,058
180,086
Diluted Earnings Per Share Income available to common stockholders and assumed
conversions
$1,607
4,501,208
$0.36
$1,968
4,977,754
$0.40
March 31, 2005
Net Portfolio ValueChanges
in Rates
NPV as % of PV of Assets
$ Amount
$ Change
% Change
NPV Ratio
Change
+300 bp
60,073
-32,235
-35%
7.74%
-328 bp +200 bp
71,917
-20,391
22%
9.04%
-198 bp +100 bp
83,610
-8,698
-9%
10.24%
-78 bp 0 bp
92,308
11.02%
-100 bp
97,843
5,535
6%
11.46%
43 bp -200 bp
95,073
2,766
3%
10.98%
-5 bp -300 bp
n/m(1)
n/m(1)
n/m(1)
n/m(1)
n/m(1)
March 31, 2004
Net Portfolio ValueChanges
in Rates
NPV as % of PV of Assets
$ Amount
$ Change
% Change
NPV Ratio
Change +300 bp
63,356
-24,797
-28%
8.45%
-244 bp +200 bp
72,482
-15,671
-18%
9.42%
-146 bp +100 bp
81,173
-6,980
-8%
10.29%
-60 bp 0 bp
88,153
10.89%
-100 bp
87,900
-253
0%
10.64%
-25 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 March 31, 2005 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.
Registered sales of Equity Securities and use of Proceeds
On December 22, 2004 the Company's Board of Directors authorized management to repurchase an additional 10% of the Company's outstanding stock, or approximately 470,000 shares over a
twelve-month period. Information on the shares purchased during the first quarter of 2005 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
505,643(1)
January 1, 2005 - January 31, 2005
12,500
$24.40
12,500
493,143
February 1, 2005 - February 28, 2005
37,200
24.54
37,200
455,943
March 1, 2005 - March 31, 2005
12,120
24.11
12,120
443,823
61,820
$23.97
61,820
(1) Amount represents the number of shares available to be repurchased under the plan as of December 31, 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 | |
Exhibit 31.1 - Rule 13a - 14(a) Certification - Chief Executive Officer | ||
Exhibit 31.2 - Rule 13a - 14(a) Certification - Chief Financial Officer | ||
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: May 10, 2005 | By: | /s/ David W. Heeter David W. Heeter President and Chief Executive Officer |
Date: May 10, 2005 | 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: May 10, 2005
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: May 10, 2005
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: May 10, 2005 | /s/ David W. Heeter David W. Heeter, President and Chief Executive Officer |
Date: May 10, 2005 | /s/ Timothy J. McArdle Timothy J. McArdle, Senior Vice President, Treasurer, and Chief Financial Officer |