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Horizon Bank

Horizon Bancorp Announces Record Earnings for 2012

January 23, 2013 08:33 AM
 

Michigan City, Indiana (NASDAQ GM: HBNC) Horizon Bancorp today announced its unaudited financial results for the three and twelve month periods ended December 31, 2012. All share data has been adjusted to reflect the three-for-two stock split paid on November 9, 2012.

 

SUMMARY:

  • Horizons net income of $19.5 million for the twelve months ending 2012 surpasses the $12.8 million earned in the prior year and represents the highest annual net income in the Companys history.
  • Fourth quarter 2012 net income was $5.2 million or $.56 diluted earnings per share, a 22% increase in diluted earnings per share compared to 2011. In addition, this represents the highest quarterly net income in the Companys history.
  • Horizons net income for 2012 was $19.5 million or $2.30 diluted earnings per share, a 52% increase in diluted earnings per share compared to the same period in 2011.
  • On July 17, 2012 Horizon completed its acquisition of Heartland Bancshares, Inc. (Heartland). On that date, Horizon recorded $229.5 million in assets and $218.7 million in liabilities.
  • As a result of the acquisition and organic growth, total assets increased to a record $1.8 billion at December 31, 2012, compared with $1.5 billion at December 31, 2011.
  • Total loans increased $207.5 million during 2012, consisting of $92.9 million in organic loan growth and $114.6 million net loans acquired from Heartland.
  • Total deposits increased $283.7 million during 2012, consisting of $72.5 million in organic deposit growth and $211.2 million in deposits acquired from Heartland.
  • Net interest income, after provisions for loan losses, for 2012 was $54.7 million compared with $42.8 million for 2011.
  • The provision for loan losses decreased to $3.5 million for the year ended December 31, 2012 compared to $5.3 million for 2011.
  • Net charge-offs in 2012 were $4.1 million compared to $5.5 million in 2011.
  • Substandard and 30 to 89 day delinquent loans in total decreased by $1.9 million during 2012 from $60.8 million at December 31, 2011 to $58.9 million at December 31, 2012 including $21.5 million at December 31, 2012 acquired from the Heartland merger. ­
  • Return on average assets was 1.13% in the fourth quarter of 2012 and 1.19% the year ended December 31, 2012.
  • Return on average common equity was 13.70% in fourth quarter 2012 and 14.72% for the year ended December 31, 2012.
  • Horizon Banks capital ratios continue to be well above the regulatory standards for well-capitalized banks.

Performance Highlights

 

Net income for the fourth quarter of 2012 was $5.2 million or $.56 diluted earnings per share, which reflects a 22% increase in diluted earnings per share over the $3.5 million or $.46 diluted earnings per share in the fourth quarter of 2011. Net income for 2012 rose to $19.5 million or $2.30 diluted earnings per share, which reflects a 52% increase in diluted earnings per share over the net income of $12.8 million or $1.51 diluted earnings per share for 2011.

 

Craig M. Dwight, President and CEO, stated: It was gratifying that in a year in which we made a substantial acquisition, the entire Horizon team maintained a strong focus on growing the banks established business that consequently contributed to increased shareholder value. Our success in serving customers, expanding customer relationships and winning new customers led to organic year-over-year growth. In addition to the growth provided by Heartland, we continued to expand Horizons size, scope, and access to new market opportunities in our other markets.

 

We believe Horizons continued success reflects our business expansion strategy and focus on a balanced mix of five revenue streams business banking, retail banking, residential mortgage lending, mortgage warehouse lending and investment management. Being somewhat counter-cyclical sectors in nature, these are designed to deliver consistent and stable performance over time.

 

In 2012, despite a sluggish economy and suppressed interest rates, all five business sectors delivered growth and strong performance. Commercial lending, which was a key focus in 2012, grew significantly, particularly in the Indianapolis, Indiana and Kalamazoo, Michigan markets. The midyear addition of Heartlands Indianapolis area locations and the 2012 opening of a new commercial banking office in Indianapolis offer the potential to further expand commercial lending.

 

Dwight continued, Horizon had strong production in residential mortgage lending, and related increases from the gain on sale primarily of long-term, low fixed-rate loans which we did not retain in order to manage interest rate risk. Also due to the active mortgage and refinancing market, our mortgage warehousing business, which generates low-cost capital for the Company, grew considerably in 2012.

 

We also continued our diligence in managing expenses. Productivity enhancements in past years have contributed to Horizons efficiency in recent years and continue to support efficient growth. We anticipate continuing productivity improvements related to the acquired Heartland business. The ongoing low interest rate environment will continue to present challenges, however, we were satisfied with our ability to maintain net interest margin in 2012.

 

The net interest margin was 4.16% in the fourth quarter of 2012, up from 3.95% for the three-month period ending December 31, 2011. The net interest margin was 3.89% for the year ended December 31, 2012, up from 3.74% for 2011. The increase in the margin in 2012 compared to 2011 was due to the recognition of approximately $1.5 million of interest income during the fourth quarter from the Heartland loan discounts along with the reduction in the rate paid on interest bearing liabilities. Excluding the interest income recognized from the loan discounts, the margin would have been 3.81% and 3.79% for the three and twelve month periods ending December 31, 2012, respectively.

 

During the fourth quarter of 2012, residential mortgage loan activity generated $4.0 million in income from the gain on sale of mortgage loans, an increase of $1.5 million from the same period in 2011.

 

Lending Activity

 

Total loans increased by $207.5 million from $983.2 million at December 31, 2011 to $1.2 billion at December 31, 2012. For 2012, commercial loans increased by $108.1 million, mortgage warehouse loans increased by $43.1 million, consumer loans increased by $23.7 million and residential mortgage loans increased by $32.6 million compared to December 31, 2011 loan levels. The acquisition of Heartland increased total loans by $114.6 million, and Horizon generated an additional $92.9 million in net organic loan growth during 2012.

 

In a very competitive environment for quality lending prospects, it was encouraging to demonstrate meaningful organic loan growth, explained Dwight. In addition, we made considerable progress in improving overall credit quality in 2012, measured by net charge-offs, which declined 25% in 2012 compared to the prior year, also lower loan delinquency, and effectively disposing of repossessed collateral and other real estate owned.

 

Although loans past due 30 to 89 days and non-performing loans increased primarily as a result of the acquisition, this was expected and we are working diligently with borrowers to resolve issues and return loans to current status. We have deployed a seasoned expert in handling troubled loans to address these challenged credits. Horizon is also seeing progress from its loan collection efforts.

 

The provision for loan losses was $1.7 million for the fourth quarter of 2012, which was $877,000 more than the provision for the same period of the prior year. For the year ended 2012, the provision for loan losses was $3.5 million, which was $1.8 million less than the provision for the prior year. The higher provision for loan losses during the fourth quarter was related to organic growth in the Companys loan portfolio and $431,000 of charge-offs related to the credit losses resulting from the Heartland loans acquired that exceeded the loan discounts recorded at the time of the acquisition. As a percentage of total loans, non-performing loans were 1.97% on December 31, 2012, down from 2.08% on September 30, 2012, and 2.02% on December 31, 2011.

 

The ratio of allowance for loan losses to total loans decreased to 1.52% as of December 31, 2012 from 1.89% as of December 31, 2011. The decrease in the ratio was primarily due to the increase in total loans resulting from the Heartland acquisition in which loans were recorded at fair value with no allowance allocated to them at December 31, 2012.

 

Non-performing loans totaled $23.8 million on December 31, 2012, down from $24.4 million on September 30, 2012, and up from $20.1 million on December 31, 2011. The increase from December 31, 2011 was due to the Heartland acquisition. Excluding Heartland, non-performing loans would have declined to $16.5 million at December 31, 2012 from $19.1 million at September 30, 2012.

 

At December 31, 2012, loans acquired in the Heartland acquisition represented $7.3 million in non-performing, $18.1 million in substandard and $3.4 million in delinquent loans, which compares to $5.3 million in non-performing, $20.0 million in substandard and $4.6 million in delinquent loans at September 30, 2012.

 

Other Real Estate Owned (OREO) totaled $2.6 million on December 31, 2012, representing no change from September 30, 2012, but down from $2.8 million on December 31, 2011. During the fourth quarter, eight properties with a book value of $866,000 as of September 30, 2012 were sold, and seven properties with a book value of $975,000 as of December 31, 2012 were transferred into OREO. Another four properties were written down by $109,000. On December 31, 2012, OREO was comprised of 20 properties. Of these properties, five totaling $1.3 million were commercial real estate and 15 totaling $1.3 million were residential real estate.

 

Expense Management

 

Total non-interest expense was $7.9 million higher for the year ending December 31, 2012 compared to 2011 and $2.8 million higher for the three months ending December 31, 2012 compared to the three months ending December 31, 2011. Salaries and employee benefits increased $5.5 million for the year ending December 31, 2012 compared to 2011 and were $2.0 million higher for the three months ending December 31, 2012 compared to 2011. These increases were primarily the result of changes to annual merit pay, employee benefits costs, commissions earned and bonus accruals. In addition, compensation expense was higher due to the Heartland merger and directly related to Horizons investment in growth markets. Included in 2012s non-interest expense was approximately $1.5 million of transaction expenses related to the Heartland acquisition.

 

Outlook

 

Dwight concluded: In an eventful year with numerous potential distractions, Horizon grew its existing banking business while integrating acquired assets and positioning the Company to pursue additional expansion opportunities. In addition to the acquisition, Horizon opened two new full service branches: one in Valparaiso, Indiana, which was our third branch in this market, and relocated a loan and deposit office in Kalamazoo, Michigan. We also opened the loan and deposit office in Indianapolis, Indiana, which grew total assets to $35 million in approximately six months of operations.

 

We very are diligent in analyzing opportunities before opening offices or branches. We anticipate leasing an empty bank building in downtown Kalamazoo and opening a new office in the coming months to serve this strong-performing market. We have also started construction on a branch in the Indianapolis suburb of Greenwood, Indiana. When completed, we plan to relocate a current branch to this location, which we believe is far superior.

 

Horizon continues to consider opportunities to expand in our existing and new markets and to further leverage our capabilities and business model. We remain focused on growing shareholder value, including returning a portion of earnings as cash dividends. We were gratified that during a time of great uncertainty, speculation and volatility in the stock market, investors recognized and rewarded our performance with a significantly higher stock price. We are making strategic investments in people and capabilities which, we believe, will allow us to be more productive and generate business, creating a balanced approach to building the Horizon franchise.

 

Horizon Bancorp is a locally owned, independent, commercial bank holding company serving Northern and Central Indiana and Southwest Michigan through its commercial banking subsidiary, Horizon Bank, which also operates under the Heartland Community Bank a Horizon Bank Company name in certain markets. 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.

 

This press release may contain forward-looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon. For these statements, Horizon claims the protections of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Statements in this press release should be considered in conjunction with the other information available about Horizon, including the information in the filings we make with the Securities and Exchange Commission. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance. The forward-looking statements are based on managements expectations and are subject to a number of risks and uncertainties. We have tried, wherever possible, to identify such statements by using words such as anticipate, estimate, project, intend, plan, believe, will and similar expressions in connection with any discussion of future operating or financial performance. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include risk factors relating to the banking industry and the other factors detailed from time to time in Horizons reports filed with the Securities and Exchange Commission, including those described in Item 1A Risk Factors of Part I of Horizons Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Undue reliance should not be placed on the forward-looking statements, which speak only as of the date hereof. Horizon does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to update any forward-looking statement to reflect the events or circumstances after the date on which the forward-looking statement is made, or reflect the occurrence of unanticipated events, except to the extent required by law.

 

Contact: Horizon Bancorp

Mark E. Secor

Chief Financial Officer

(219) 873-2611

Fax: (219) 874-9280

 

 
 
 

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