Horizon Bancorp Announces Record Earnings for 2010
January 19, 2011 01:31 PM
Michigan City, Indiana (NASDAQ GM: HBNC) - Horizon Bancorp today announced its unaudited financial results for the three and twelve month periods ended December 31, 2010.
Horizon's 2010 results represent the Company's eleventh consecutive year of record earnings.
Horizon's net income for the twelve months ended December 31, 2010, was $10.5 million or $2.71 diluted earnings per share compared to $9.1 million or $2.37 diluted earnings per share for the prior year.
Horizon's fourth quarter 2010 net income was $2.9 million or $.75 diluted earnings per share, a 37.7% increase from the same period in 2009.
The net interest margin increased to 4.01% for the three months ending December 31, 2010, primarily as a result of the decrease in the rate paid on interest bearing liabilities during the quarter.
Horizon's residential mortgage loan activity provided $2.0 million of income from the gain on sale of mortgage loans during the fourth quarter.
Total loans decreased during the fourth quarter as the balance of mortgage warehouse loans decreased $70.1 million from September 30, 2010 as a result of rising long term mortgage interest rates.
The ratio of allowance for loan losses to total loans increased to 2.11% from 1.85% at September 30, 2010 as Horizon's loan and lease loss reserve increased for probable incurred losses inherent in the portfolio. In addition total loans decreased.
Horizon's net loans charged off increased during the fourth quarter to $1.6 million compared to $1.2 million during the third quarter of 2010.
Horizon's balance of Other Real Estate Owned ("OREO") and repossessed assets decreased approximately $1.5 million, to $2.7 million, during the fourth quarter as properties were sold.
Horizon's non-performing loans decreased by approximately $252,000 from September 30, 2010 to December 31, 2010 and 30 to 89 days delinquent loans decreased $3.2 million during the same period.
Horizon's 30 to 89 day loan delinquencies were 0.66% and 0.93% of total loans at December 31, 2010 and September 30, 2010, respectively.
Horizon's non-performing loans to total loans ratio as of December 31, 2010 was 2.38%, which compares favorably to National and State of Indiana peer averages as of September 30, 2010 of 4.91% and 2.73%, the most recent data available.
On November 10, 2010, the Company completed the redemption process to reduce the US Treasury's preferred stock investment by $6.25 million, which represents a 25% reduction.
Horizon's capital ratios continue to be above the regulatory standards for well-capitalized banks.
Craig M. Dwight, Chief Executive Officer of Horizon Bancorp stated, "We are proud of Horizon's 2010 performance and our eleventh consecutive year of record earnings. We believe Horizon's continued success reflects our business expansion strategy and focus on a balanced mix of revenue streams that are in counter-cyclical businesses. While we anticipate some slowing of the mortgage lending business, which has been very strong during the past several years, we have strong and proven commercial lending teams in place to generate opportunities in line with the general economic improvement occurring."
"One of our key goals in 2011 is to build core deposits to help maintain a low cost of funding. Our strong capital position enables us to pursue organic growth and acquisition opportunities. Our acquisition of American Trust & Savings Bank in 2010, for example, added $100 million in deposits, of which 70% were core deposits. We believe bank market fragmentation and Horizon's competitive strength will generate opportunities to grow and build market share in Northern Indiana and Southwest Michigan."
Dwight explained the Company plans to continue to invest in people and activities that directly support net income generation. For instance, he noted that while non-interest expense increased in 2010 compared with 2009, a significant portion of this increase reflected new facilities and income-generating personnel, as well as bonuses paid based on exceeding individual and branch profitability goals. "Our performance-based corporate culture is a fundamental part of our ability to motivate and reward a talented group of people, and to attract the best bankers possible to support further growth," he noted.
Net income for the fourth quarter of 2010 was $2.9 million or $.75 diluted earnings per share. This compares to $2.1 million or $.53 diluted earnings per share for the same quarter of the prior year. Net income for the twelve months ended December 31, 2010 was $10.5 million or $2.71 diluted earnings per share. This compares to $9.1 million or $2.37 diluted earnings per share for the same period of the prior year.
Diluted earnings per share for both the three and twelve month periods ending December 31, 2010 and December 31, 2009 were reduced by $.11 per share and $.42 per share, respectively, due to the preferred stock dividends and the accretion of the discount on the preferred stock held by the U.S. Department of Treasury. The Company repaid $6.3 million of such preferred stock on
November 10, 2010, which, will reduce the amount of dividends paid on the preferred stock starting in the first quarter of 2011 by approximately $78,000.
Net interest income increased $1.7 million and $2.8 million for the three and twelve month periods ending December 31, 2010 compared to the same time periods for the prior year. This increase was primarily due to a decrease in interest expense resulting from a decrease in the cost of funds. The net interest margin increased to 3.80% for the twelve months ending December 31, 2010 compared to 3.66% for the same period in the prior year. The net interest margin increased throughout 2010. For the three months ending March 31, 2010, June 30, 2010, September 30, 2010, and December 31, 2010, the net interest margin was 3.55%, 3.78%, 3.84%, and 4.01%, respectively. The increase in the net interest margin during the fourth quarter of 2010 was primarily due to the reduction in cost of funds from repricing wholesale funding into lower rate instruments.
The provision for loan losses was $2.7 million for the three months ending December 31, 2010, which was approximately $1.0 million less than the provision for the same period of the prior year. The 2010 fourth quarter provision was approximately the same as the third quarter of 2010.
Non-performing loans totaled $21.4 million on December 31, 2010, down slightly from $21.7 million on September 30, 2010 and up from $17.1 million on December 31, 2009. As a percentage of total loans non-performing loans were 2.38% on December 31, 2010, up from 2.22% on September 30, 2010 primarily due to a decrease in total loans as the mortgage warehouse loan balance decreased during the quarter.
Horizon's non-performing loans to total loans ratio as of December 31, 2010 compares favorably to National and State of Indiana peer averages1of 4.91% and 2.73%, respectively, as of September 30, 2010, the most recent data available.
The decrease of non-performing loans from the prior quarter was primarily due to lower non-performing commercial and installment loans, partially offset by higher non-performing real estate loans. Non-performing commercial loans declined from $8.9 million on September 30, 2010 to $8.1 million on December 31, 2010. The decline was due to charge-offs totaling $549,000, and one loan with a balance of $393,000 on September 30, 2010 being brought current while only two new loans totaling $76,000 were added to non-performing status during the quarter. No commercial loans were moved to OREO during the quarter. Real estate nonperforming loans increased from $8.5 million on September 30, 2010 to $9.3 million on December 31, 2010. Installment non-performing loans decreased from $4.4 million on September 30, 2010 to $4.0 million on December 31, 2010.
Real estate and installment non-performing loans on December 31, 2010 include $1.8 million and $2.3 million, respectively, of loans in bankruptcy. This compares to $0.9 million and $2.3 million on September 30, 2010. These loans are not considered troubled debt restructures (TDR's) while they are going through bankruptcy, a process that can take six to eighteen months. The increase in the amount of loans in bankruptcy included in the Company's non-performing loans indicates that this cycle potentially has not peaked. The Company's experience with bankrupt loans has demonstrated that some debtors continue to make payments during the bankruptcy process, many reaffirm when they come out of bankruptcy, and some loans are discharged or restructured by the court. The Company has been accumulating historical data on the performance of loans going through the bankruptcy process and utilizes that data in the calculation of the allowance for loan losses. Currently only two commercial loans totaling approximately $170,000 are in bankruptcy.
TDR's are also included in the non-performing loans total. TDR's increased from $3.9 million on September 30, 2010 to $4.4 million on December 31, 2010. Of these, $3.6 million were real estate loans, $574,000 were commercial loans, and $202,000 were installment loans. The increase was primarily due to the addition of one commercial loan totaling $153,000. Only $278,000 of all TDR's were on non-accrual as of December 31, 2010.
Non-accrual loans totaled $16.7 million on December 31, 2010, similar to $17.0 million on September 30, 2010, but up from $11.9 million on December 31, 2009. On December 31, 2010, non-accrual loans to hotel owners totaled $4.5 million, to home builders and land developers $1.2 million, and to restaurant operators $1.0 million. Loans 90 days delinquent but still on accrual totaled $358,000 down from $833,000 on September 30, 2010, and down from $1.8 million on December 31, 2009. Horizon's policy is to place loans over 90 days delinquent on non-accrual unless they are in the process of collection and a full recovery is expected.
Other Real Estate Owned (OREO) totaled $2.7 million on December 31, 2010, down from $4.0 million on September 30, 2010, but up from $1.7 million on December 31, 2009. During the quarter 11 properties with a book value of $934,000 as of September 30, 2010 were sold. Another four properties were written down by $187,000. No properties were transferred into OREO during the quarter. On December 31, 2010, OREO was comprised of 17 properties. Of these, seven totaling $2.0 million were commercial and ten totaling $684,000 were residential real estate. There was no repossessed personal property on December 31, 2010, down from $107,000 on September 30, 2010. Horizon currently has $1.7 million of OREO under contract to sell with closing dates scheduled within the next 90 days.
No mortgage warehouse loans were non-performing as of December 31, 2010, September 30, 2010, or December 31, 2009.
The residential mortgage loan activity during the fourth quarter generated $2.0 million of income from the gain on sale of mortgage loans, up $763,000 from the same period in 2009 but down $464,000 from the third quarter of 2010. For the twelve month period ended December 31, 2010, gain on sale of mortgage loans was up $1.4 million compared to the same twelve month period in 2009.
Increased pre-payments on the mortgage loan servicing portfolio caused the servicing asset to be impaired during the fourth quarter, resulting in a $202,000 net loss on mortgage servicing net of impairment compared to a $3,000 loss for the same period in 2009.
Total other expenses were $2.0 million higher in the fourth quarter of 2010 compared to the fourth quarter of 2009 and $4.8 million higher when comparing the twelve month periods ending December 31, 2010 and 2009. Salaries and employee benefits increased $1.2 million and $2.9 million for the three and twelve month periods ending December 31, 2010, respectively. This increase is the result of additional payroll expense from the consolidation of the American Trust & Savings Bank transaction that closed at the end of the second quarter, the expansion into Kalamazoo, Michigan, and bonus accruals based on the Company's performance through twelve months of 2010. The Company also continues to experience higher loan expense related to problem loan, bankruptcy, and collection costs. In addition, the Company recognized $664,000 of transaction costs related to the purchase and assumption of American Trust & Savings Bank during the twelve months of 2010.
On November 3, 2010, the Company received approval to redeem 25%, or $6.25 million, of the US Treasury's original $25.0 million preferred stock investment in the Company from the Capital Purchase Program, which is a program of the Troubled Assets Relief Program ("TARP"). On November 10, 2010, the Company completed the redemption process reducing the US Treasury's preferred stock investment in the Company to $18.75 million. This repurchase will result in annual savings of $312,500 or $0.09 per share, due to the elimination of the associated preferred stock dividends. The Company's plan is to repurchase the remaining preferred stock over the next three years from the Company's earnings or may seek to replace such amount through the recently announced Small Business Lending Fund program which is part of the Small Business Jobs Act of 2010.
Horizon Bancorp is a locally owned, independent, commercial bank holding company serving Northern Indiana and Southwest Michigan. Horizon also offers mortgage-banking services throughout the Midwest. Horizon Bancorp may be reached online at www.accesshorizon.com. Its common stock is traded on the NASDAQ Global Market under the symbol HBNC.
Statements in this press release which express "belief," "intention," "expectation," and similar expressions, identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company's management, as well as assumptions made by, and information currently available to, such management. Such statements are inherently uncertain and there can be no assurance that the underlying assumptions will prove to be accurate. Actual results could differ materially from those contemplated by the forward-looking statements. Any forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Contact: Horizon Bancorp
Mark E. Secor
Chief Financial Officer
Fax: (219) 874-9280