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

PRESS RELEASE

Date:	February 8, 2008
From:	MutualFirst Financial, Inc.
For Publication:	Immediately
Contact:	Tim McArdle, Senior Vice President and Treasurer of
	MutualFirst Financial, Inc. (765) 747-2818

MutualFirst 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.

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.

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.

MUTUALFIRST    FINANCIAL INC.
	31-Dec		31-Dec
Selected Financial Condition Data(Unaudited):	2007		2006
	(000)		(000)
Total Assets	$	962,517	$	960,842
Cash and cash equivalents		23,648		24,915
Loans held for sale		1,645		1,330
Loans receivable, net		802,436		805,625
Investment securities available for sale, at fair value		43,692		41,363
Total deposits		666,407		703,359
Total borrowings		196,638		158,852
Total stockholders' equity		87,014		87,264

	Three Months			Three Months			Three Months			Twelve Months			Twelve Months
	Ended			Ended			Ended			Ended			Ended
	31-Dec			30-Sep			31-Dec			31-Dec			31-Dec
Selected Operations Data (Unaudited):	2007			2007			2006			2007			2006
	(000)			(000)			(000)			(000)			(000)
Total interest income	$	14,380		$	14,128		$	14,284		$	56,374		$	56,119
Total interest expense		8,195			8,277			8,184			32,227			29,890
Net interest income		6,185			5,851			6,100			24,147			26,229
Provision for loan losses		843			532			625			2,240			2,068
Net interest income after provision
for loan losses		5,342			5,319			5,475			21,907			24,161
Non-interest income
Fees and service charges		1,256			1,266			1,103			4,831			4,370
Equity in gains (losses) of limited partnerships		(24	)		(23	)		(166	)		(100	)		(181	)
Commissions		242			317			195			1,001			682
Net gain (loss) on loan sales and servicing		195			90			(963	)		472			(607	)
Increase in cash surrender value of life insurance		278			298			304			1,230			1,075
Other income		133			56			1,081			337			1,303
Total non-interest income		2,080			2,004			1,554			7,771			6,642
Non-interest expense
Salaries and benefits		3,832			3,633			3,651			14,759			14,617
Occupancy and equipment		923			896			858			3,591			3,428
Data processing fees		245			259			238			1,058			898
Professional fees		232			176			266			764			993
Marketing		277			173			251			887			966
Other expenses		1,024			1,061			1,105			4,097			4,117
Total non-interest expense		6,533			6,198			6,369			25,156			25,019
Income before taxes		889			1,125			660			4,522			5,784
Income tax provision (benefit)		(4	)		(36	)		(43	)		296			1,028
Net income	$	893		$	1,161		$	703		$	4,226		$	4,756

Average Balances, Net Interest Income, Yield Earned and Rates Paid
			Three							Three
			mos ended							mos ended
			12/31/2007							12/31/2006
	Average		Interest		Average			Average		Interest		Average
	Outstanding		Earned/		Yield/			Outstanding		Earned/		Yield/
	Balance		Paid		Rate			Balance		Paid		Rate
								(000)		(000)
Interest-Earning Assets:
Interest -bearing deposits	$	3,717	$	37		3.98	%	$	2,208	$	20		3.62	%
Mortgage-backed securities:
Available-for-sale		8,316		112		5.39			10,372		125		4.82
Investment securities:
Available-for-sale		33,023		441		5.34			30,123		386		5.13
Loans receivable		815,964		13,667		6.70			833,714		13,645		6.55
Stock in FHLB of Indianapolis		9,943		113		4.55			10,092		108		4.28
Total interest-earning assets (3)		870,963		14,370		6.60			886,509		14,284		6.45
Non-interest earning assets, net of allowance
for loan losses and unrealized gain/loss		89,130							87,860
Total assets	$	960,093						$	974,369
Interest-Bearing Liabilities:
Demand and NOW accounts	$	130,409	$	689		2.11	%	$	119,611		623		2.08
Savings deposits		51,952		68		0.52			56,999		72		0.51
Money market accounts		22,569		138		2.45			27,886		162		2.32
Certificate accounts		441,622		5,190		4.70			467,795		5,387		4.61
Total deposits		646,552		6,085		3.76			672,291		6,244		3.72
Borrowings		164,089		2,110		5.14			153,848		1,940		5.04
Total interest-bearing accounts		810,641		8,195		4.04			826,139		8,184		3.96
Non-interest bearing deposit accounts		47,071							46,112
Other liabilities		15,173							14,737
Total liabilities		872,885							886,988
Stockholders' equity		87,208							87,381
Total liabilities and stockholders' equity	$	960,093						$	974,369
Net earning assets	$	60,322						$	60,370
Net interest income			$	6,175						$	6,100
Net interest rate spread						2.56	%						2.49	%
Net yield on average interest-earning assets						2.84	%						2.75	%
Average interest-earning assets to
average interest-bearing liabilities						107.44	%						107.31	%

	Three Months			Three Months			Three Months			Twelve Months			Twelve Months
	Ended			Ended			Ended			Ended			Ended
	31-Dec			30-Sep			31-Dec			31-Dec			31-Dec
Selected Financial Ratios and Other Financial Data Unaudited):	2007			2007			2006			2007			2006
Share and per share data:
Average common shares outstanding
Basic		4,063,357			4,102,302			4,131,938			4,103,940			4,196,059
Diluted		4,089,234			4,144,979			4,205,594			4,151,173			4,274,039
Per share:
Basic earnings	$	0.22		$	0.28		$	0.17		$	1.02		$	1.13
Diluted earnings	$	0.22		$	0.28		$	0.17		$	1.03		$	1.11
Dividends	$	0.15		$	0.15		$	0.15		$	0.60		$	0.58
Dividend payout ratio		68.18	%		53.57	%		88.24	%		58.25	%		52.25	%
Performance Ratios:
Return on average assets (ratio of net income to average total assets)(1)		0.37	%		0.49	%		0.29	%		0.44	%		0.49	%
Return on average tangible equity (ratio of net income to average tangible equity)(1)		4.96	%		6.45	%		3.88	%		5.86	%		6.43	%
Interest rate spread information:
Average during the period(1)		2.56	%		2.39	%		2.49	%		2.50	%		2.70	%
Net interest margin(1)(2)		2.84	%		2.69	%		2.75	%		2.79	%		2.96	%
Efficiency Ratio		79.04	%		78.91	%		83.21	%		78.81	%		76.11	%
Ratio of average interest-earning
assets to average interest-bearing
liabilities		107.44	%		107.85	%		107.31	%		107.92	%		107.65	%
Allowance for loan losses:
Balance beginning of period	$	8,181		$	8,277		$	8,051		$	8,156		$	8,100
Charge offs:
One- to four- family		101			360			57			645			527
Multi-family		0			0			0			0			0
Commercial real estate		18			26			48			44			102
Construction or development		0			0			0			0			0
Consumer loans		672			332			476			1,731			1,288
Commercial business loans		0			36			0			303			387
Sub-total		791			754			581			2,723			2,304
Recoveries:
One- to four- family		64			9			3			121			81
Multi-family		0			0			0			0			0
Commercial real estate		0			0			0			0			0
Construction or development		0			0			0			0			0
Consumer loans		55			117			58			357			200
Commercial business loans		0			0			0			201			11
Sub-total		119			126			61			679			292
Net charge offs		672			628			520			2,044			2,012
Additions charged to operations		843			532			625			2,240			2,068
Balance end of period	$	8,352		$	8,181		$	8,156		$	8,352		$	8,156
Net loan charge-offs to average loans (1)		0.33	%		0.31	%		0.25	%		0.25	%		0.24	%

	December 31,			September 30,			December 31,
	2007			2007			2006
Total shares outstanding		4,226,638			4,299,138			4,366,636
Tangible book value per share	$	16.99		$	16.87		$	16.57
Nonperforming assets (000's)
Loans: Non-accrual	$	8,949		$	8,603		$	5,569
Accruing loans past due 90 days or more		1,421			1,695			0
Restructured loans		107			108			111
Total nonperforming loans		10,477			10,406			5,680
Real estate owned		1,364			1,599			1,273
Other repossessed assets		1,137			1,282			1,322
Total nonperforming assets	$	12,978		$	13,287		$	8,275
Asset Quality Ratios:
Non-performing assets to total assets		1.35	%		1.37	%		0.86	%
Non-performing loans to total loans		1.29	%		1.27	%		0.70	%
Allowance for loan losses to non-performing loans		79.72	%		78.62	%		143.59	%
Allowance for loan losses to loans receivable		1.03	%		1.00	%		1.00	%

(1) Ratios for the three month period 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.