Fourth Quarter Earnings 2007

Monday, March 24, 2008

MutualFirst Announces Fourth Quarter 2007 Earnings

Announces Fourth Quarter 2007 Earnings

Muncie, Indiana -MutualFirst Financial, Inc. (NASDAQ: MFSF), the holding company of Mutual Federal Savings Bank (the "Bank"), announced today that net income for the fourth quarter ended December 31, 2007 was $893,000, or $.22 for basic and diluted earnings per share an increase when compared to the fourth quarter 2006. Net income for the comparable period in 2006 was $703,000, or $.17 for basic and diluted earnings per share. Annualized return on assets was .37% and return on average tangible equity was 4.96% for the fourth quarter of 2007 compared to .29% and 3.88%, respectively, for the same period last year.

-MutualFirst Financial, Inc. (NASDAQ: MFSF), the holding company of Mutual Federal Savings Bank (the "Bank"), announced today that net income for the fourth quarter ended December 31, 2007 was $893,000, or $.22 for basic and diluted earnings per share an increase when compared to the fourth quarter 2006. Net income for the comparable period in 2006 was $703,000, or $.17 for basic and diluted earnings per share. Annualized return on assets was .37% and return on average tangible equity was 4.96% for the fourth quarter of 2007 compared to .29% and 3.88%, respectively, for the same period last year.

Net income for the year ended December 31, 2007 was $4.2 million, or $1.03 for basic and $1.02 for diluted earnings per share. This compared to net income for the comparable period in 2006 of $4.8 million, or $1.13 for basic and $1.11 for diluted earnings per share. Annualized return on average assets was .44% and return on average tangible equity was 5.86% for 2007 compared to .49% and 6.43% respectively, for 2006.

Assets totaled $962.5 million at December 31, 2007, an increase from December 31, 2006 of $1.7 million, or 0.2%. Loans, excluding loans held for sale, decreased $3.2 million or 0.4%. Consumer loans increased $2.5 million, or 1.1%, and residential mortgage loans held in the portfolio increased $2.1 million, or 0.5%, while commercial loans decreased $3.7 million, or 2.5%. Mortgage loans held for sale increased $315,000 and mortgage loans sold during 2007 totaled $24.1 million. The decreased loan balances are due primarily to slower than projected production for the year ended 2007. Investment securities available for sale increased $2.5 million, or 6.1%, compared to December 31, 2006. The increase was due primarily to the purchase of $7.8 million of investments throughout the year.

Allowance for loan losses increased $197,000 to $8.4 million at December 31, 2007 when compared to December 31, 2006. Net charge offs for 2007 were $2.0 million, or .25% of average loans on an annualized basis, compared to $2.0 million, or .24% of average loans for the comparable period in 2006. As of December 31, 2007 the allowance for loan losses as a percentage of loans receivable and non-performing loans was 1.03% and 79.72%, respectively, compared to 1.00% and 143.59%, respectively, at December 31, 2006.

Total deposits were $666.4 million at December 31, 2007, a decrease from $703.4 at December 31, 2006. This decrease was due primarily to decreases in wholesale deposits of $20.5 million, decreases in retail certificates of $15.9 million and decreases in money market and savings deposits of $10.5. These decreases were partially offset by increases in core demand deposits of $9.9 million. Total borrowings increased $37.8 million to $196.6 million at December 31, 2007 from $158.9 million at December 31, 2006. The increase in borrowings was primarily due to better market rates on borrowings than on wholesale and retail certificate of deposits in the fourth quarter 2007.

Stockholders' equity decreased $250,000, or 0.3%, from $87.3 million at December 31, 2006, to $87.0 million at December 31, 2007. The decrease was due primarily to the repurchase of 155,000 shares of common stock for $2.8 million and dividend payments of $2.4 million. The decrease was partially offset by net income of $4.2 million, Employee Stock Ownership Plan (ESOP) and RRP shares earned of $604,000 and exercised stock options of $209,000. Also, the market value of securities available for sale compared to their book value decreased $60,000 from a loss of $355,000 at December 31, 2006 to a loss of $417,000 at December 31, 2007.

Net interest income before the provision for loan losses increased $85,000 from $6.1 million for the three months ended December 31, 2006 to $6.2 million for the three months ended December 31, 2007. The reasons for the increase were a 9 basis point increase in the net interest margin from 2.75% for the fourth quarter 2006 to 2.84% for the fourth quarter 2007, primarily offset by a $15.5 million, or 1.8%, decrease in average interest earning assets. The reduction in average interest earning assets was due primarily to a restructuring of the balance sheet in the fourth quarter of 2006 and decreased loan balances during 2007. On a linked quarter basis, net interest margin increased 15 basis points from 2.69% in the third quarter 2007 to 2.84% in the fourth quarter 2007.

Net interest income before the provision for loan losses decreased $2.1 million for the year ended December 31, 2007 compared to the year ended December 31, 2006. The reasons for the decrease were a decrease in average interest earning assets of $21.9 million, or 2.5% and a decrease in the net interest margin of 17 basis points from 2.96% for the year ended December 31, 2006 to 2.79% for the year ended December 31, 2007.

The provision for loan losses for the fourth quarter of 2007 was $843,000, compared to $625,000 for last year's comparable period. Non-performing loans to total loans at December 31, 2007 were 1.29% compared to .70% at December 31, 2006. Non-performing assets to total assets were 1.35% at December 31, 2007 compared to .86% at December 31, 2006. On a linked quarter basis, non-performing loans to total loans increased slightly from 1.27% at September 30, 2007 compared to 1.29% at December 31, 2007 and non-performing assets to total assets decreased slightly from 1.37% at September 30, 2007 to 1.35% at December 31, 2007.

The provision for loan losses for the year ended December 31, 2007 increased $172,000 to $2.2 million compared to $2.1 million for the year ended December 31, 2006.

Non-interest income increased $526,000, or 33.8% to $2.1 million for the three months ended December 31, 2007 compared to the same period in 2006. This is due to a number of issues including increases in commission income of $47,000, or 24.1% and increases in service fees on transaction accounts of $153,000, or 13.9%. Gain on sale of loans increased $1.2 million compared to the fourth quarter of 2006 primarily due to a $963,000 loss in the fourth quarter of 2006 primarily related to a large loan sale to reposition the balance sheet. These increases were partially offset by decreases in income from cash surrender value of life insurance of $26,000 and decreases in other income of $948,000 due to income from a land exchange transaction and state tax refunds from previous years in the fourth quarter of 2006. On a linked quarter basis, non-interest income increased $76,000, or 3.8%, primarily due to increases in gains on sale of loans.

For the year ended December 31, 2007 non-interest income increased $1.1 million, or 17.0%, to $7.8 million compared to the year ended 2006. The increase was due primarily to increases in our service fees on transaction accounts of $461,000, or 10.5%, increases in commission income of $319,000, or 46.8%, and improved earnings on cash surrender value of life insurance of $155,000, or 14.4%. CEO Dave Heeter commented, "We believe these results reflect successful implementation of new products and services that allowed for greater core non-interest income in 2007." An increase in gain on sale of loans of $1.1 million and a decrease in other income of $966,000 were due primarily to non-recurring events in the fourth quarter of 2006 as discussed above.

Non-interest expense increased $164,000, or 2.6% to $6.5 million for the three months ended December 31, 2007 compared to $6.4 million for the same period in 2006. Increases in current quarter non-interest expense compared to the same period in 2006 included increases in data processing expense of $7,000, increases in occupancy expense of $65,000, increases in salaries and employee benefits of $181,000, and increases in marketing expenses of $26,000. These increases were offset by decreases in professional fees of $34,000 and other expenses of $81,000.

Non-interest expense increased $137,000, or 0.6% to $25.2 million for the year ended December 31, 2007 compared to $25.0 million for the year ended 2006 primarily due to a new branch opening in February of 2008. The increase was due primarily to increases in salaries and benefits of $142,000, increases in occupancy and equipment of $163,000, and data processing expense of $160,000 due primarily to technological upgrades. These increases were partially offset by a decrease in professional fees of $229,000, a decrease in marketing expense of $79,000, and a decrease in other expenses of $20,000.

Income tax expense increased $39,000 for the three months ended December 31, 2007 compared to the same period in 2006 due primarily to more taxable income. The effective tax rate also increased from (6.5%) to (0.4)%. The effective tax rate increased due to a lower percentage of non-taxable income to total income before income tax. The effective tax rate continued to be negative due to higher percentage of low income housing tax credits to taxable income.

For the year ended December 31, 2007, income tax expense decreased $732,000 compared to the year ended 2006. The decrease was due primarily to decreased taxable income. The effective tax rate also decreased from 17.8% to 6.5% due to a higher percentage of non-taxable income to total income before income tax and an increased percentage of low income housing tax credits to taxable income when comparing the year ended 2007 to the year ended 2006, respectively.

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

Financial, Inc. and Mutual Federal Savings Bank are headquartered in Muncie, Indiana with twenty-one full service offices in Delaware, Grant, Kosciusko, Randolph, and Wabash counties.

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