Second Quarter 2012 Earnings / MutualBank

Business & Personal Checking Accounts – MutualBank

 

Second Quarter 2012 Earnings

Published Tuesday, July 24, 2012 by Chris Cook, CFO

MutualFirst Financial, Inc. (NASDAQ: MFSF), the holding company of MutualBank (the “Bank”), announced today net income to common shareholders for the second quarter ended June 30, 2012 of $1.3 million, or $.18 for basic and diluted earnings per common share and the fourth consecutive quarter of increased earnings per share.  This compared to net income available to common shareholders for the same period in 2011 of $1.2 million, or $.18 for basic and diluted earnings per common share. Annualized return on assets was .45% and return on average tangible common equity was 4.97% for the second quarter of 2012 compared to .46% and 5.14% respectively, for the same period of last year. 

Net income available to common shareholders for the six months ended June 30, 2012 was $2.3 million, or $.34 for basic earnings per common share and $.33 for diluted earnings per common share compared to net income available to common shareholders of $86,000, or $.01 for basic and diluted earnings per common share for the six months ended June 30, 2011.  Annualized return on assets was .43% and return on average tangible common equity was 4.58% for the first half of 2012 compared to .14% and .18% respectively, for the same period of last year.

Other financial highlights for the second quarter ended June 30, 2012 included:

  • Gross loans increased by $20.9 million, or 2.2% in the second quarter of 2012 and increased by $37.2 million, or 4.1% for the first half of 2012.
  • Deposits decreased $18.6 million in the second quarter as higher rate certificate of deposit balances declined $26.3 million.
  • Allowance for loan losses to non-performing loans was 64.36% as of June 30, 2012 compared to 52.81% as of December 31, 2011.  Allowance for loan losses to loans receivable was 1.68% as of June 30, 2012 compared to 1.83% as of December 31, 2011.
  • Classified loans have decreased approximately 17% since December 31, 2011 and other credit quality ratios approximate early 2009 levels.
  • Net charge offs on an annualized basis were 1.04% in the second quarter 2012 compared to .67% in the first quarter of 2012.
  • Tangible common equity to total assets is 7.14% and tangible book value per share is $15.00 as of June 30, 2012.
  • Net interest margin was 3.10% for the second quarter 2012 compared to 3.03% in the first quarter 2012.
  • Non-interest income for the quarter ended June 30, 2012 increased $777,000 compared to the first quarter 2012.
  • Non-interest expense for the second quarter 2012 increased $339,000 compared to the first quarter 2012.

“We were encouraged by an increase in earnings over the first quarter of 2012 and an enhancement in all of our credit quality ratios in the second quarter.  While net charge offs increased, the majority of losses were on previously identified credits.” said David W. Heeter, President and CEO.

Balance Sheet

Assets increased $44.3 million as of June 30, 2012 compared to December 31, 2011, primarily due to the increase in gross loans of $37.2 million and increases in investment securities of $34.5 million which were partially offset by a decrease in cash of $33.0 million.  The increase in the gross loan portfolio was led by the increase of one-to four- family mortgage loans of $45.0 million, partially offset by declines in consumer and commercial loans of $7.8 million.  The increase in investment securities was in shorter term government agency mortgage-backed securities and was primarily funded by cash held as of December 31, 2011.  In the second quarter of 2012, gross loans increased $20.9 million, primarily in one-to four- family mortgage loans of $20.4 million along with increases in commercial and consumer loans of $456,000.  Mortgage loans held for sale increased by $7.2 million, since December 31, 2011, as the Bank began selling most thirty year mortgage loans it had been holding in portfolio due to increased market values and to mitigate interest rate risk.  Mortgage loans sold as of the first half of 2012 totaled $15.2 million. Heeter commented, “We are pleased with the increase in our total loan portfolio this quarter and year to date.  Loan growth has been elusive as we have worked through the economic and credit environment, but our goal will be to continue to focus on originating high quality loans to help grow the loan portfolio over the near future.”

Deposits increased by $4.9 million in the first half of 2012.  The increase in deposits has been primarily in core transactional accounts which increased $51.3 million while certificates of deposit decreased $46.4 million in the first half of 2012. Core transactional deposits increased to 49% of the Bank’s total deposits as of June 30, 2012 compared to 45% as of December 31, 2011. The increase in core transactional account deposits allowed the Bank to retire higher rate maturing certificates of deposit.  FHLB advances have increased $35.1 million in the first half of 2012 to support loan growth.

Allowance for loan losses was $16.0 million as of June 30, 2012 compared to $16.6 million as of March 31, 2012 and $16.8 million as of December 31, 2011.  Specific valuation reserves on loans individually evaluated for impairment declined $800,000 in the second quarter of 2012 as the overall allowance declined $631,000.  Net charge offs in the second quarter were $2.5 million, or 1.04% of total loans on an annualized basis, compared to $1.5 million, or .67% of total loans on an annualized basis in the first quarter of 2012.  Net charge offs increased primarily due to write-downs on loans with specific valuation reserves due to liquidation of loans or additional information pertaining to certain credits.  The allowance for loan losses to non-performing loans as of June 30, 2012 was 64.36% compared to 56.21% as of March 31, 2012 and 52.81% as of December 31, 2011.  The allowance for loan losses to total loans as of June 30, 2012 was 1.68% compared to 1.83% as of December 31, 2011.  Heeter commented, “We believe that our allowance for loan losses adequately reflects the risk in our portfolio and the current risk in the economy as we move forward.  Our improving credit ratios are a positive sign indicating that we have made significant progress in working through may of the larger impaired credits in our portfolio.”

Stockholders’ equity was $136.6 million at June 30, 2012, an increase of $4.0 million from December 31, 2011. The increase was due primarily to net income of $3.1 million and unrealized gains on securities of $2.2 million. This increase was partially offset by dividend payments of $838,000 to common shareholders and $723,000 to preferred shareholders.  The Company’s tangible book value per share as of June 30, 2012 increased to $15.00 compared to $14.38 as of December 31, 2011 and its tangible common equity ratio was 7.14% as of June 30, 2012 compared to 7.05% as of December 31, 2011.  MFSF and the Bank’s risk-based capital ratios were well in excess of “well-capitalized” levels as defined by all regulatory standards as of June 30, 2012. 

Income Statement

Net interest income before the provision for loan losses decreased $204,000 for the quarter ended June 30, 2012 compared to the same period in 2011.  The decrease was a result of the decline in the net interest margin from 3.19% in the second quarter of 2011 to 3.10% in the second quarter of 2012, partially offset by an increase in average earning assets of $11.8 million.    On a linked quarter basis, net interest income before the provision for loan losses increased $481,000 as net interest margin increased by 7 basis points and average earning assets increased by $31.4 million. 

Net interest income before the provision for loan losses decreased $650,000 for the first half of 2012 compared to the same period in 2011.  The decrease was a result of the decline in the net interest margin from 3.16% in the first half of 2011 to 3.06% in the first half of 2012, partially offset by an $828,000 increase in average earning assets.

The provision for loan losses for the second quarter of 2012 increased to $1.9 million compared to $1.7 million during last year’s comparable period.  The increase was due to management’s ongoing evaluation of the adequacy of the allowance for loan losses which was partially attributable to increased net charge offs of $2.5 million, or 1.04% of loans on an annualized basis in the second quarter of 2012 compared to charge offs of $1.5 million, or .64% of loans on an annualized basis in the second quarter of 2011.   Non-performing loans to total loans at June 30, 2012 was 2.61% compared to 2.56% at June 30, 2011.  Non-performing assets to total assets were 2.23% at June 30, 2012 compared to 2.29% at June 30, 2011. 

The provision for loan losses for the first half of 2012 decreased to $3.2 million compared to $5.9 million during last year’s comparable period.  The decrease was primarily due to net charge offs of $4.8 million in the first quarter of 2011 which were not repeated in 2012.  The charge offs were for previously identified problem loans that were mostly collateralized by real estate.  Non-performing loans to total loans at June 30, 2012 were 2.61% compared to 3.47% at December 31, 2011.  This decrease in non-performing loans was primarily in commercial real estate and one-to four-family mortgage loans.  Non-performing assets to total assets were 2.23% at June 30, 2012 compared to 2.75% at December 31, 2011.

Non-interest income for the second quarter of 2012 was $3.7 million an increase of $393,000 compared to the second quarter of 2011.  Increases in mortgage production and market values drove approximately $366,000 more in mortgage banking income for the quarter than in same period of 2011.  For similar reasons, gains on the security portfolio increased by $281,000. As prepayments on mortgage loans have increased, mortgage loan servicing values declined and an impairment of $135,000 partially offset the non-interest income increase in the quarter.  A $98,000 increase in loss on sale of other real estate and repossessed assets also offset gains in non-interest income for the quarter as activity on foreclosed assets has continued to be strong.  On a linked quarter basis, non-interest income increased $777,000, primarily in mortgage banking activity and decreases in losses on foreclosed assets.

Non-interest income for the first half of 2012 was $6.6 million, an increase of $675,000 compared to the first half of 2011.  The increase was primarily due to $811,000 of additional gains on the investment and loan portfolios as the lower market rates allowed for securities and mortgage loans to be sold at gains comparing the first of half of 2012 to 2011.  Partially offsetting these increases was a $135,000 impairment on mortgage servicing rights as the lower market rates also increased the likelihood of prepayments and $216,000 more of losses due to increased activity for foreclosed assets.

Non-interest expense decreased $67,000 when comparing the second quarter of 2012 with the same period in 2011.  The largest decline was in occupancy expense of $115,000 primarily due to decreased expenses and increased leased office space in a large office building owned and occupied by the Bank.  On a linked quarter basis, non-interest expense increased $339,000 primarily due to repossessed asset expense increasing by $118,000, other expenses increasing by $118,000 primarily due to a one-time charge after correcting servicing issues with a sub-servicer and taking back servicing; and professional fees increasing by $85,000 primarily due to legal expenses related to problem loans.

Non-interest expense decreased $676,000 when comparing the first half of 2012 with the same period in 2011.  Reductions were primarily a result of decreased occupancy and equipment expense by $373,000 due to the reasons stated above, one less branch that was closed in March of 2011 and a much milder winter than normal; decreased salaries and benefits by $226,000 primarily due to changes in employee benefits; and decreased FDIC expense by $213,000 due to decreased assessment base established in 2011 by the FDIC.

Heeter concluded, “We continue to be encouraged by our results and the progress being made.  With economic uncertainty still looming, we will continue to manage the Company to enhance shareholder value.”

MutualFirst Financial, Inc. and MutualBank, an Indiana-based financial institution, has thirty-two full-service retail financial centers in Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash Counties in Indiana.  MutualBank also has two Wealth Management and Trust offices located in Carmel and Crawfordsville, Indiana and a loan origination office in New Buffalo, Michigan.  MutualBank is a leading residential lender in each of the market areas it serves, and provides a full range of financial services including wealth management and trust services and Internet banking services.  The Company’s stock is traded on the NASDAQ National Market under the symbol “MFSF” and can be found on the internet at www.bankwithmutual.com.

 

Statements contained in this release, which are not historical facts, are forward-looking statements, as that term is defined in the Private Securities Reform Act of 1995.  Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by the Company with the Securities and Exchange Commission from time to time.

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