Mutualfirst Financial (MFSF) 8-K MutualFirst Announces Increased Second Quarter 2008 Earnings

PRESS RELEASE

Date:	July 16, 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 Increased Second Quarter 2008 Earnings

Muncie, Indiana - MutualFirst Financial, Inc. (NASDAQ: MFSF), the holding company of Mutual Bank (the “Bank”), announced today that net income for the second quarter ended June 30, 2008 was $1.2 million, or $.30 for basic and diluted earnings per share. This compared to net income for the comparable period in 2007 of $1.1 million, or $.27 for basic and diluted earnings per share. Annualized return on assets was .49% and return on tangible equity was 6.58% for the second quarter of 2008 compared to .48% and 6.24% respectively, for the same period last year.

Net income for the six months ended June 30, 2008 was $2.4 million or $.60 for basic and diluted earnings per share. This compared to net income for the comparable period in 2007 of $2.2 million or $.53 for basic and $.52 for diluted earnings per share. Annualized return on average assets was .50% and return on average tangible equity was 6.69% for the first half of 2008 compared to .46% and 6.01% respectively, for the same period last year.

The comparative increase of income for the three and six month periods was primarily due to the increase in net interest margin and non-interest income. Increased expenses, including one time charges due to re-branding the bank, technological changes, and merger related expenses partially offset the increase in net interest margin. “We are pleased with the increased income in the second quarter, especially after the increased expenses due to the renaming of the bank and the pending merger with MFB Corp.,” Dave Heeter, President and CEO of MutualFirst said.

Assets totaled $975.5 million at June 30, 2008, an increase from December 31, 2007 of $12.9 million, or 1.3%. Loans, excluding loans held for sale, decreased $9.0 million or 1.1%. Consumer loans decreased $3.6 million, or 1.6%, while commercial loans increased $5.0 million, or 3.5%, and residential mortgage loans held in the portfolio decreased $10.4 million, furthering our strategy to reduce the percentage of fixed rate real estate mortgage loans to total loans. Mortgage loans held for sale decreased $584,000 and mortgage loans sold during the first half of 2008 totaled $28.2 million compared to $12.1 million during the same period in 2007. The decreased loan balances were due primarily to an increase in sales of fixed rate real estate mortgage loans. Investment securities available for sale increased $10.8 million, or 24.8%, offsetting the reduction in the loan portfolio. Cash and cash equivalents increased $6.4 million, or 27.0% as the bank’s interest earning cash accounts increased.

Allowance for loan losses increased $252,000 to $8.6 million when comparing June 30, 2008 to December 31, 2007. Net charge offs for the first half of 2008 were $1.1 million, or .27% of average loans on an annualized basis compared to $744,000, or .18% of average loans for the comparable period in 2007. On a linked quarter basis, net charge offs compared to average loans were .28% in the second quarter 2008 compared to .26% in the first quarter 2008. As of June 30, 2008 the allowance for loan losses as a percentage of loans receivable and non-performing loans was 1.07% and 78.35%, respectively, compared to 1.03% and 169.16%, respectively, at December 31, 2007.

Total deposits were $677.7 million at June 30, 2008, an increase from $666.4 million at December 31, 2007. This increase was due primarily to increases in core demand, money market and savings deposits of $4.2 million and wholesale deposits of $15.8 million. The increase was partially offset by decreases in certificates of deposit of $8.7 million. Total borrowings increased $3.1 million to $199.7 million at June 30, 2008 from $196.6 million at December 31, 2007.

Stockholders’ equity decreased $3.6 million, or 4.1%, from $87.0 million at December 31, 2007, to $83.4 million at June 30, 2008. The decrease was due primarily to a decrease in the market value of securities available for sale compared to their book value of $3.5 million from a loss of $414,000 at December 31, 2007 to a loss of $3.9 million at June 30, 2008. This decrease was due primarily to price decreases, caused chiefly by illiquid credit markets, in certain investment grade trust preferred securities owned by the bank. CEO Heeter commented, “We believe pricing for the trust preferred securities will improve as the financial markets become more stable. We have the ability and intent to continue to hold these investments until then.” Other decreases in stockholders’ equity resulted from the use of $1.4 million to repurchase 109,000 shares of common stock and dividend payments of $1.3 million. These decreases were partially offset by net income of $2.4 million, and Employee Stock Ownership Plan (ESOP) and RRP shares earned of $211,000. Heeter also stated that, “the bank continues to be well capitalized by all regulatory standards”.

Net interest income before the provision for loan losses increased $685,000 from $6.1 million for the three months ended June 30, 2007 to $6.8 million for the three months ended June 30, 2008. The reasons for the increase were an $8.1 million, or .9%, increase in average interest earning assets and a 28 basis point increase in the net interest margin. On a linked quarter basis, net interest margin increased to 3.13% for the three months ended June 30, 2008 compared to 2.94% for the three months ended March 31, 2008.

Net interest income before the provision for loan losses increased $1.1 million for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. The reasons for the increase were similar to those stated above. Average interest earning assets increased $6.9 million, or 8.0% and the net interest margin increased by 22 basis points from 2.82% for the six months ended June 30, 2007 to 3.04% for the same period in 2008.

The provision for loan losses for the second quarter of 2008 was $733,000, compared to $533,000 for last year’s comparable period. Non-performing loans to total loans at June 30, 2008 were 1.37% compared to .61% at June 30, 2007. Non-performing assets to total assets were 1.51% at June 30, 2008 compared to .80% at June 30, 2007. On a linked quarter basis, non-performing loans to total loans decreased from 1.44% for the quarter ended March 31, 2008 to 1.37% for the quarter ended June 30, 2008.

The provision for loan losses for the six months ended June 30, 2008 was $1.3 million compared to $865,000 for last year’s comparable period. The increased provision for the six months ended 2008 compared to the same time period in 2007 was a result of increased non-performing assets, mostly in one-to four-family and commercial real estate loans and foreclosed real estate. Non-performing assets were 1.51% at June 30, 2008 compared to .80% at June 30, 2007.

Non-interest income increased $155,000 to $2.1 million, or 7.9%, for the three months ended June 30, 2008 compared to the same period in 2007. The increase was due primarily to increases in service fees on transaction accounts of $119,000, or 9.6%, increases in commission income of $64,000, or 26.2%, and increases in net gain on loan sales and servicing $61,000, or 63.5%.

For the six month period ended June 30, 2008 non-interest income increased $543,000, or 14.7%, to $4.2 million compared to $3.7 million for the same period in 2007. The reasons are similar to those mentioned above.

Non-interest expense increased $667,000 to $6.9 million, or 10.8%, for the three months ended June 30, 2008 compared to the same period in 2007. Increases in current quarter non-interest expense compared to the same period in 2007 include increases in occupancy and equipment expense of $135,000, primarily due to a new branch office in Elkhart County, increases in salaries and employee benefits of $238,000, primarily due to salary adjustments and new employees for the Elkhart County branch, increases in marketing expense of $88,000, primarily due to re-branding of the bank’s name, and increases in other expenses of $207,000, primarily due to FDIC premium increases and expenses related to the bank’s name change.

For the six month period ended June 30, 2008 non-interest expense increased $1.0 million, or 7.6%, to $13.4 million compared to $12.4 million for the same period in 2007. The reasons for the increase are similar to those mentioned above.

Income tax expense decreased $72,000 for the three months ended June 30, 2008 compared to the same period in 2007 due primarily to less income subject to income taxes. The effective tax rate also decreased from 15.2% to 10.0% due to an increased percentage of low income housing tax credits to taxable income when comparing the second quarter of 2008 to the second quarter of 2007, respectively.

For the six-month period ended June 30, 2008, income tax expense decreased $54,000 compared to the same period in 2007. The decrease was due primarily to less income subject to income taxes. The effective tax rate also decreased from 13.3% to 10.6% due to an increased percentage of low income housing tax credits to taxable income when comparing the first half of 2008 to the first half of 2007, respectively.

MutualFirst Financial, Inc. and Mutual Bank are headquartered in Muncie, Indiana with twenty-two full service offices in Delaware, Elkhart, 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.
	30-Jun		31-Dec
Selected Financial Condition Data(Unaudited):	2008		2007
	(000)		(000)
Total Assets	$	975,452	$	962,517
Cash and cash equivalents		30,042		23,648
Loans held for sale		1,061		1,645
Loans receivable, net		792,743		802,436
Investment securities available for sale, at fair value		54,516		43,692
Total deposits		677,677		666,407
Total borrowings		199,705		196,638
Total stockholders' equity		83,431		87,014

	Three Months			Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended			Ended
	30-Jun			31-Mar			30-Jun			30-Jun			30-Jun
Selected Operations Data (Unaudited):	2008			2008			2007			2008			2007
	(000)			(000)			(000)			(000)			(000)
Total interest income	$	13,489		$	13,757		$	14,056		$	27,246		$	27,865
Total interest expense		6,689			7,397			7,941			14,086			15,755
Net interest income		6,800			6,360			6,115			13,160			12,110
Provision for loan losses		733			612			533			1,345			865
Net interest income after provision
for loan losses		6,067			5,748			5,582			11,815			11,245
Non-interest income
Fees and service charges		1,365			1,159			1,246			2,525			2,309
Equity in losses of limited partnerships		(24	)		(24	)		(27	)		(47	)		(53	)
Commissions		308			292			244			600			441
Net gain on loan sales and servicing		157			210			96			367			187
Increase in cash surrender value of life insurance		276			277			317			553			655
Other income		27			206			78			232			148
Total non-interest income		2,109			2,120			1,954			4,230			3,687
Non-interest expense
Salaries and benefits		3,892			3,818			3,654			7,711			7,293
Occupancy and equipment		999			998			864			1,997			1,772
Data processing fees		243			267			298			510			554
Professional fees		231			209			177			440			356
Marketing		317			230			229			547			437
Other expenses		1,189			980			982			2,168			2,011
Total non-interest expense		6,871			6,502			6,204			13,373			12,423
Income before taxes		1,305			1,366			1,332			2,672			2,509
Income tax provision (benefit)		131			151			203			282			336
Net income	$	1,174		$	1,215		$	1,129		$	2,390		$	2,173

Average Balances, Net Interest Income, Yield Earned and Rates Paid

			Three							Three
			mos ended							mos ended
			6/30/2008							6/30/2007
	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	$	6,951	$	27		1.55	%	$	3,187	$	31		3.89	%
Mortgage-backed securities:
Available-for-sale		16,141		219		5.43			9,041		112		4.96
Investment securities:
Available-for-sale		33,205		362		4.36			30,525		398		5.22
Loans receivable		801,027		12,747		6.37			806,907		13,405		6.65
Stock in FHLB of Indianapolis		10,395		134		5.16			9,938		110		4.43
Total interest-earning assets (3)		867,719		13,489		6.22			859,598		14,056		6.54
Non-interest earning assets, net of allowance
for loan losses and unrealized gain/loss		89,475							87,451
Total assets	$	957,194						$	947,049
Interest-Bearing Liabilities:
Demand and NOW accounts	$	123,177	$	290		0.94	%	$	123,554		727		2.35
Savings deposits		55,487		73		0.53			56,666		72		0.51
Money market accounts		22,229		75		1.35			25,167		162		2.57
Certificate accounts		419,724		4,142		3.95			446,168		5,197		4.66
Total deposits		620,617		4,580		2.95			651,555		6,158		3.78
Borrowings		185,197		2,109		4.56			140,767		1,784		5.07
Total interest-bearing accounts		805,814		6,689		3.32			792,322		7,942		4.01
Non-interest bearing deposit accounts		49,274							50,829
Other liabilities		15,626							16,143
Total liabilities		870,714							859,294
Stockholders' equity		86,480							87,755
Total liabilities and stockholders' equity	$	957,194						$	947,049
Net earning assets	$	61,905						$	67,276
Net interest income			$	6,800						$	6,114
Net interest rate spread						2.90	%						2.53	%
Net yield on average interest-earning assets						3.13	%						2.85	%
Average interest-earning assets to
average interest-bearing liabilities						107.68	%						108.49	%

	Three Months			Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended			Ended
	30-Jun			31-Mar			30-Jun			30-Jun			30-Jun
Selected Financial Ratios and Other Financial Data (Unaudited):	2008			2008			2007			2008			2007
Share and per share data:
Average common shares outstanding
Basic		3,970,982			4,003,509			4,120,844			3,987,123			4,125,935
Diluted		3,970,982			4,003,509			4,173,986			3,987,123			4,186,103
Per share:
Basic earnings	$	0.30		$	0.30		$	0.27		$	0.60		$	0.53
Diluted earnings	$	0.30		$	0.30		$	0.27		$	0.60		$	0.52
Dividends	$	0.16		$	0.16		$	0.15		$	0.32		$	0.30
Dividend payout ratio		53.33	%		53.33	%		55.56	%		53.33	%		57.69	%
Performance Ratios:
Return on average assets (ratio of net
income to average total assets)(1)		0.49	%		0.51	%		0.48	%		0.50	%		0.46	%
Return on average tangible equity (ratio of net
income to average tangible equity)(1)		6.58	%		6.80	%		6.24	%		6.69	%		6.01	%
Interest rate spread information:
Average during the period(1)		2.90	%		2.68	%		2.53	%		2.79	%		2.51	%
Net interest margin(1)(2)		3.13	%		2.94	%		2.85	%		3.04	%		2.82	%
Efficiency Ratio		77.12	%		76.67	%		76.89	%		76.90	%		78.64	%
Ratio of average interest-earning
assets to average interest-bearing
liabilities		107.68	%		107.57	%		108.49	%		107.59	%		108.24	%
Allowance for loan losses:
Balance beginning of period	$	8,440		$	8,352		$	8,219		$	8,352		$	8,156
Charge offs:
One- to four- family		113			2			64			115			184
Multi-family		0			0			0			0			0
Commercial real estate		153			31			0			184			0
Construction or development		0			0			0			0			0
Consumer loans		541			548			314			1,089			727
Commercial business loans		0			30			267			30			267
Sub-total		807			611			645			1,418			1,178
Recoveries:
One- to four- family		35			2			48			37			48
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		203			28			121			231			185
Commercial business loans		0			57			1			57			201
Sub-total		238			87			170			325			434
Net charge offs		569			524			475			1,093			744
Additions charged to operations		733			612			533			1,345			865
Balance end of period	$	8,604		$	8,440		$	8,277		$	8,604		$	8,277
Net loan charge-offs to average loans (1)		0.28	%		0.26	%		0.24	%		0.27	%		0.18	%

	June 30,			March 31,			June 30,
	2008			2008			2007
Total shares outstanding		4,118,079			4,179,879			4,329,183
Tangible book value per share	$	16.60		$	17.13		$	16.71
Nonperforming assets (000's)
Loans: Non-accrual	$	10,526		$	10,625		$	4,383
Accruing loans past due 90 days or more		350			809			400
Restructured loans		105			106			110
Total nonperforming loans		10,981			11,540			4,893
Real estate owned		2,302			1,478			1,519
Other repossessed assets		1,483			1,120			1,207
Total nonperforming assets	$	14,766		$	14,138		$	7,619
Asset Quality Ratios:
Non-performing assets to total assets		1.51	%		1.47	%		0.80	%
Non-performing loans to total loans		1.37	%		1.44	%		0.61	%
Allowance for loan losses to non-performing loans		78.35	%		73.14	%		169.16	%
Allowance for loan losses to loans receivable		1.07	%		1.05	%		1.03	%

(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.