Mutualfirst Financial (MFSF) 8-K MutualFirst Announces First Quarter 2007 Earnings

PRESS RELEASE

Date:	April 20, 2007
From:	MutualFirst Financial, Inc.
For Publication:	Immediately
Contact:	Tim McArdle, Senior Vice President and Treasurer of
	MutualFirst Financial, Inc. (765) 747-2818

MutualFirst Announces First 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 first quarter ended March 31, 2007 was $1.0 million, or $.25 for basic and diluted earnings per share. This compared to net income for the same period in 2006 of $1.6 million, or $.37 for basic and $.36 for diluted earnings per share. Annualized return on assets was .44% and return on average tangible equity was 5.79% for the first quarter of 2007 compared to .65% and 8.32% respectively, for the same period of last year. The comparative reduction of income for the three month period was primarily due to a shrinking net interest margin as discussed below. The increase in net interest margin on a linked quarter basis is also discussed below. “We continue to operate in a difficult interest rate environment,” Dave Heeter, President and CEO of MutualFirst said. “We believe this slight margin expansion is indicative that we are making progress against obvious challenges.”

On March 22, 2007 the Bank completed the acquisition of Wagley Investment Advisors, Inc. Wagley Investment Advisors, Inc. will be known as Mutual Financial Advisors, providing new and expanded investment management services not previously offered by the Bank.  Mutual Financial Advisors will offer a full range of non-bank investment options and money management.  “This acquisition will expand the Bank’s customer base and will create opportunity to deepen customers relationships,” CEO Heeter added.

Assets totaled $945.4 million at March 31, 2007, a decrease from December 31, 2006 of $15.5 million, or 1.6%. Gross loans, excluding loans held for sale, decreased $10.8 million, or 1.3%. Consumer loans decreased $1.7 million or .7%, and commercial loans decreased $5.3 million, or 3.8%, while residential mortgage loans held in the portfolio decreased $3.8 million, or .8%. Residential mortgage loans held for sale decreased $50,000 and mortgage loans sold during the quarter totaled $5.0 million compared to $4.7 million sold in the first quarter of last year. First quarter seasonality and paydowns are the primary reasons for the decreased loan balances. The current loan pipeline is strong and indicates the opportunity for growth. Investment securities available for sale decreased $860,000, or 2.1%.

Allowance for loan losses was $8.2 million at March 31, 2007, an increase of $64,000 from December 31, 2006. Net charge offs for the quarter ended March 31, 2007 were $269,000 or .13% of average loans on an annualized basis compared to $464,000, or .22% of average loans for the comparable period in 2006. The decrease was primarily due to a recovery of $196,000 for previously charged off commercial leases. As of March 31, 2007, the allowance for loan losses as a percentage of non-performing loans and total loans was 155.0% and 1.02%, respectively, compared to 143.59% and 1.00%, respectively at December 31, 2006. CEO Heeter commented, “We continue to see consistent quality in our loan portfolio. Aversion to higher risk loan opportunities like sub-prime lending has created solid loan quality.”

Total deposits were $700.7 million at March 31, 2007, a slight decrease of $2.7 million, or .4% from December 31, 2006. This decrease was due primarily to decreases in wholesale deposits of $9.7 million and retail certificates of deposit of $6.0 million. Consistent with our strategy, these decreases were mostly offset by increases in core demand, money market and savings deposits of $13.0 million. Total borrowings decreased $14.8 million to $144.0 million at March 31, 2007 from $158.9 million at December 31, 2006 due to the payment of several maturing and variable rate FHLB advances.Stockholders’ equity was $87.6 million at March 31, 2007, an increase of $373,000, or .4% from December 31, 2006. Net income of $1.0 million, Employee Stock Ownership Plan (ESOP) and RRP shares earned of $167,000 and options exercised netting $87,000 were partially offset by the repurchase of 16,000 shares of common stock for $317,000 and dividend payments of $653,000. Also, the unrealized loss on securities available for sale decreased $46,000 from $355,000 at December 31, 2006 to $309,000 at March 31, 2007.

Net interest income before the provision for loan losses decreased $1.0 million from $7.0 million for the three months ended March 31, 2006 to $6.0 million for the three months ended March 31, 2007. The primary reason for the decline was a 41 basis point decrease in the net interest margin reflecting the Bank’s liability sensitive nature, as short term interest rates rose and average interest-earning assets decreased $17.8 million, or 2.0%. This reduction in average interest-earning assets was primarily due to a restructuring of the balance sheet in the fourth quarter of 2006 and decreased loan balances in the first quarter of 2007. On a linked quarter basis, net interest margin increased to 2.79% for the three months ended March 31, 2007 compared to 2.75% for the three months ended December 31, 2006. The primary reason for the increase was the restructuring of the balance sheet in the fourth quarter 2006 and a flattening of deposit re-pricing during the first quarter of 2007.

The provision for loan losses for the first quarter of 2007 was $332,000, down from $393,000 for last year’s comparable period. The decrease was due to decreased net charge offs, improving delinquency trends and lower loan balances. Non-performing loans to total loans at March 31, 2007 were .66% compared to .70% at December 31, 2006. Non-performing assets to total assets were .80% at March 31, 2007 compared to .86% at December 31, 2006.

Non-interest income increased $69,000 to $1.7 million, or 4.1% for the three months ended March 31, 2007 compared to the same period in 2006. The increase was primarily due to increases in the increase of cash surrender value of life insurance of $101,000, or 42.4% and service fees on transaction accounts of $56,000, or 5.6%. These increases were partially offset by decreases in gains on sales and servicing of loans sold of $43,000 and gains on limited partnerships of $38,000. On a linked quarter basis, non-interest income increased $179,000. Gain on sales and servicing of loans sold increased $1.1 million primarily due to a $24.6 million loan sale in November 2006 at a loss of $1.2 million. Other income decreased $1.0 million primarily due to non-recurring events including a gain on a land exchange in Elkhart County and prior year state tax refunds in the fourth quarter of 2006 compared to the first quarter of 2007.

Non-interest expense remained unchanged at $6.2 million for the three months ended March 31, 2007 compared to the same period in 2006. Increases in current quarter non-interest expense compared to the same period in 2006 include increases in marketing expense of $64,000 and increases in occupancy expense of $28,000 which are a result of the acquisition of three branches from First Financial Bank. Other expenses increased $56,000 primarily due to increased REO expense due to more repossessed properties. These increases were offset by decreases in salaries and employee benefits of $110,000, primarily due to changes in health care plans, and decreases in professional fees of $80,000, primarily due to a recovery of legal costs on charged off leases and the conclusion of a three year consulting agreement in November of 2006.

Income tax expense decreased $387,000 for the three months ended March 31, 2007 compared to the same period in 2006 due to less taxable income. The effective tax rate decreased from 25.0% to 11.3% due to an increased percentage of low income housing tax credits to taxable income when comparing the first quarter of 2006 and the first quarter of 2007, 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.

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.

MUTUALFIRST FINANCIAL INC.

	31-Mar		31-Dec
Selected Financial Condition Data(Unaudited):	2007		2006
	(000)		(000)
Total Assets	$	945,351	$	960,842
Cash and cash equivalents		20,583		24,915
Loans held for sale		1,280		1,330
Loans receivable, net		794,789		805,625
Investment securities available for sale, at fair value		40,504		41,363
Total deposits		700,657		703,359
Total borrowings		144,032		158,852
Total stockholders' equity		87,638		87,264

	Three Months			Three Months			Three Months
	Ended			Ended			Ended
	31-Mar			31-Dec			31-Mar
Selected Operations Data (Unaudited):	2007			2006			2006
	(000)			(000)			(000)
Total interest income	$	13,809		$	14,284		$	13,588
Total interest expense		7,814			8,184			6,557
Net interest income		5,995			6,100			7,031
Provision for loan losses		332			625			393
Net interest income after provision
for loan losses		5,663			5,475			6,638
Non-interest income
Fees and service charges		1,064			1,103			1,007
Equity in gains (losses) of limited partnerships		(27	)		(166	)		12
Commissions		197			195			198
Net gain (loss) on loan sales and servicing		91			(963	)		134
Increase in cash surrender value of life insurance		338			304			237
Other income		70			1,081			76
Total non-interest income		1,733			1,554			1,664
Non-interest expense
Salaries and benefits		3,639			3,651			3,749
Occupancy and equipment		908			858			879
Data processing fees		256			238			218
Professional fees		179			266			258
Marketing		209			251			144
Other expenses		1,028			1,105			972
Total non-interest expense		6,219			6,369			6,220
Income before taxes		1,177			660			2,082
Income tax provision		133			(43	)		520
Net income	$	1,044		$	703		$	1,562

Average Balances, Net Interest Income, Yield Earned and Rates Paid
			Three							Three
			mos ended							mos ended
			3/31/2007							3/31/2006
	Average		Interest		Average			Average		Interest		Average
	Outstanding		Earned/		Yield/			Outstanding		Earned/		Yield/
	Balance		Paid		Rate			Balance		Paid		Rate
	(000)		(000)					(000)		(000)
Interest-Earning Assets:
Interest -bearing deposits	$	2,963	$	27		3.64	%	$	2,097	$	12		2.29	%
Mortgage-backed securities:
Available-for-sale		9,696		117		4.83			9,761		106		4.34
Investment securities:
Available-for-sale		30,759		388		5.05			30,057		327		4.35
Loans receivable		807,217		13,150		6.52			826,381		13,023		6.30
Stock in FHLB of Indianapolis		9,938		127		5.11			10,125		120		4.74
Total interest-earning assets (3)		860,573		13,809		6.42			878,421		13,588		6.19
Non-interest earning assets, net of allowance
for loan losses and unrealized gain/loss		86,409							84,419
Total assets	$	946,982						$	962,840
Interest-Bearing Liabilities:
Demand and NOW accounts	$	119,243		674		2.26		$	79,698		160		0.80
Savings deposits		56,943		70		0.49			62,521		77		0.49
Money market accounts		26,338		155		2.35			43,028		187		1.74
Certificate accounts		447,376		5,098		4.56			466,220		4,364		3.74
Total deposits		649,900		5,997		3.69			651,467		4,788		2.94
Borrowings		146,038		1,817		4.98			163,517		1,769		4.33
Total interest-bearing accounts		795,938		7,814		3.93			814,984		6,557		3.22
Non-interest bearing deposit accounts		49,269							44,340
Other liabilities		14,684							14,472
Total liabilities		859,891							873,796
Stockholders' equity		87,091							89,044
Total liabilities and stockholders' equity	$	946,982						$	962,840
Net earning assets	$	64,635						$	63,437
Net interest income			$	5,995						$	7,031
Net interest rate spread						2.49	%						2.97	%
Net yield on average interest-earning assets						2.79	%						3.20	%
Average interest-earning assets to
average interest-bearing liabilities						108.12	%						107.78	%

	Three Months			Three Months			Three Months
	Ended			Ended			Ended
	31-Mar			31-Dec			31-Mar
Selected Financial Ratios and Other Financial Data (Unaudited):	2007			2006			2006
Share and per share data:
Average common shares outstanding
Basic		4,129,925			4,131,938			4,269,197
Diluted		4,197,120			4,205,594			4,353,654
Per share:
Basic earnings	$	0.25		$	0.17		$	0.37
Diluted earnings	$	0.25		$	0.17		$	0.36
Dividends	$	0.15		$	0.15		$	0.14
Dividend payout ratio		60.00	%		88.24	%		38.89	%
Performance Ratios:
Return on average assets (ratio of net
income to average total assets)(1)		0.44	%		0.29	%		0.65	%
Return on average tangible equity (ratio of net
income to average tangible equity)(1)		5.79	%		3.88	%		8.32	%
Interest rate spread information:
Average during the period(1)		2.49	%		2.49	%		2.97	%
Net interest margin(1)(2)		2.79	%		2.75	%		3.20	%
Efficiency Ratio		80.47	%		83.21	%		71.54	%
Ratio of average interest-earning
assets to average interest-bearing
liabilities		108.12	%		107.31	%		107.78	%
Allowance for loan losses:
Balance beginning of period	$	8,156		$	8,051		$	8,100
Charge offs:
One- to four- family		120			57			222
Multi-family		0			0			0
Commercial real estate		0			48			0
Construction or development		0			0			0
Consumer loans		413			476			247
Commercial business loans		0			0			25
Sub-total		533			581			494
Recoveries:
One- to four- family		0			3			0
Multi-family		0			0			0
Commercial real estate		0			0			0
Construction or development		0			0			0
Consumer loans		64			58			30
Commercial business loans		200			0			0
Sub-total		264			61			30
Net charge offs		269			520			464
Additions charged to operations		332			625			393
Balance end of period	$	8,219		$	8,156		$	8,029
Net loan charge-offs to average loans (1)		0.13	%		0.25	%		0.22	%

	March 31,			December 31,			March 31,
	2007			2006			2006
Total shares outstanding		4,357,130			4,366,636			4,513,476
Tangible book value per share	$	16.68		$	16.57		$	16.65
Nonperforming assets (000's)
Loans: Non-accrual	$	5,144		$	5,569		$	4,416
Accruing loans past due 90 days or more		48			0			2,025
Restructured loans		111			111			115
Total nonperforming loans		5,303			5,680			6,556
Real estate owned		1,003			1,273			1,647
Other repossessed assets		1,254			1,322			823
Total nonperforming assets	$	7,560		$	8,275		$	9,026
Asset Quality Ratios:
Non-performing assets to total assets		0.80	%		0.86	%		0.94	%
Non-performing loans to total loans		0.66	%		0.70	%		0.79	%
Allowance for loan losses to non-performing loans		154.99	%		143.59	%		122.47	%
Allowance for loan losses to loans receivable		1.02	%		1.00	%		0.97	%

(1) Ratios for the three periods have been annualized.

(2) Net interest income divided by average interest earning assets.

(3) Calculated net of deferred loan fees, loan discounts, loans in process and loss reserves.