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MUTUALFIRST FINANCIAL INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operation

August 4, 2014

The following should be read in conjunction with the Management's Discussion and Analysis in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the SEC on March 14, 2014.

The Company is a Maryland corporation and a bank holding company headquartered in Muncie, Indiana, with operations in Delaware, Elkhart, Grant, Kosciusko, Randolph, St. Joseph and Wabash counties in Indiana. It owns MutualBank, an Indiana commercial bank with 30 bank branches in Indiana, trust offices in Carmel and Crawfordsville, Indiana and a loan origination office in New Buffalo, Michigan. The Company is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System ("FRB"), and the Bank is subject to regulation, supervision and examination by the Indiana Department of Financial Institutions and the Federal Deposit Insurance Corporation.

Our principal business consists of attracting retail and commercial deposits from the general public and businesses, including some brokered deposits, and investing those funds primarily in loans secured by consumer closed end first mortgages and consumer open end and junior liens on owner-occupied, one- to four-family residences, a variety of other consumer loans, loans secured by commercial real estate, commercial construction and development and commercial and industrial loans. Funds not invested in loans generally are invested in investment securities, including mortgage-backed and mortgage-related securities. We also obtain funds from FHLB advances and other borrowings.

Our results of operations depend primarily on the level of our net interest income, which is the difference between interest income on interest-earning assets, such as loans, mortgage-backed securities and investment securities, and interest expense on 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 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.

Second Quarter Highlights. At June 30, 2014, we had $1.4 billion in assets, $981.1 million in loans, $1.1 billion in deposits and $119.8 million in stockholders' equity. The Company's total risk-based capital ratio at June 30, 2014 was 12.9%, exceeding the 10.0% requirement for a well-capitalized institution. Tangible common equity increased to 8.4% as of June 30, 2014 compared to 7.9% and 7.7% at December 31, 2013 and June 30, 2013, respectively. For the quarter ended June 30, 2014, net income available to common shareholders was $2.6 million, or $.36 per basic and $.35 per diluted share, compared with net income available to common shareholders of $1.8 million, or $0.26 per basic and $0.25 per diluted share for the quarter ended June 30, 2013.

Financial highlights for the second quarter ended June 30, 2014 included:

Gross loan balances increased by $16.5 million, or 6.7% on an annualized basis

in the second quarter of 2014.

Asset quality continues to improve as non-performing loans to total loans were

0.61% as of June 30, 2014 compared to 0.80% as of March 31, 2014 and

non-performing assets to total assets were 0.94% as of June 30, 2014 compared

to 1.12% as of March 31, 2014.

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Classified loans decreased approximately 17% in the second quarter of 2014 and

20% since December 31, 2013.

Deposits decreased $25.7 million in the second quarter of 2014 primarily due to

a decrease in certificates of deposit of $25.8 million.

Tangible common equity to total assets is 8.40% and tangible book value per

share is $16.54 as of June 30, 2014 compared to tangible common equity to total assets of 7.91% and tangible book value per share of $15.46 as of December 31, 2013.



Cash dividend on common stock increased by 33%.

Net interest income for the second quarter of 2014 increased by $139,000 on a

linked quarter basis and $538,000 compared to the second quarter of 2013.

Net interest margin was 3.28% for the second quarter 2014 compared to 3.10% in

the second quarter 2013.

Non-interest income in the second quarter of 2014 increased by $541,000 on a

linked quarter basis and decreased by $46,000 when compared to the second

quarter of 2013.

Non-interest expense decreased in the second quarter of 2014 by $394,000 on a

linked quarter basis and $49,000 when compared to the second quarter of 2013.



The Management's Discussion and Analysis in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2013, contains a summary of our management strategy. The financial highlights of our strategy during the quarter include: increasing commercial and non-real estate consumer lending by $23.3 million since year-end 2013; core deposits increased to 61%, from 58% at year-end 2013, and decreasing non-performing assets to total assets from 1.22% at year-end 2013 to .94% at the end of the quarter.

Critical Accounting Policies


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Source: Edgar Glimpses


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