Horizon Announces Increase in 2nd Quarter Earnings
July 19, 2010 02:18 PM
Michigan City, Indiana (NASDAQ GM: HBNC) - Horizon Bancorp today announced its unaudited financial results for the three and six month periods ended June 30, 2010.
- Horizon's second quarter 2010 net income was $2.5 million or $0.65 diluted earnings per share, a 40.4% increase in net income from the previous quarter.
- Horizon's net income for the six months ended June 30, 2010, was $4.3 million or $1.09 diluted earnings per share.
- The purchase and assumption of American Trust & Savings Bank in Whiting, Indiana closed on May 28, 2010 adding $107.8 million in purchased assets and $110.3 million of assumed liabilities.
- The expensed acquisition costs for American Trust & Savings Bank were $555,000 during the second quarter of 2010 and were $664,000 for the first six months of 2010.
- The net interest margin increased during the second quarter as excess cash held during the first quarter was deployed into higher yielding assets along with a reduction in the overall cost of funds.
- The activity in mortgage warehouse lending increased the average loan balance during the quarter, increasing interest income.
- Horizon continued to experience steady residential mortgage loan activity during the second quarter providing $1.7 million of income from the gain on sale of mortgage loans.
- Horizon continues to build its loan and lease loss reserve.
- Horizon's quarterly provision for loan losses decreased by approximately $233,000 from the allowance for the first quarter of 2010.
- The ratio of allowance for loan losses to total loans decreased to 1.77% from 1.99% at March 31, 2010 due to the increase in total loans from mortgage warehousing and the acquisition of loans at fair market value from American Trust & Savings Bank.
- Horizon's net loans charged off declined during the second quarter to $2.6 million compared to $3.1 million during the first quarter of 2010.
- Horizon's balance of Other Real Estate Owned and repossessed assets increased approximately $677,000, to $2.9 million, during the second quarter.
- Horizon's non-performing loans increased approximately $4.8 million from March 31, 2010 to June 30, 2010, primarily due to a $4.6 million loan secured by a hotel being placed on non-accrual during the quarter.
- Horizon's non-performing loans to total loans ratio as of June 30, 2010 was 2.26%, which compares favorably to National and State of Indiana peer averages  of 2.83% and 4.82%, respectively, as of March 31, 2010, the most recent data available.
- 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, "The second quarter was extremely busy and rewarding for the Horizon team as we successfully closed on the American Trust & Savings Bank purchase and assumption and completed the related data processing conversion. In addition, the improvement in earnings speaks well of our competent team of dedicated and seasoned bankers given these tough economic times."
Net income for the second quarter of 2010 was $2.5 million or $.65 diluted earnings per share. This compares to $2.1 million or $.52 diluted earnings per share for the same quarter of the prior year. Net income for the six months ended June 30, 2010 was $4.3 million or $1.09 diluted earnings per share. This compares to $4.7 million or $1.22 diluted earnings per share for the same period of the prior year.
Diluted earnings per share for both the June 30, 2010 and June 30, 2009 three and six month periods ending were reduced by $.11 per share and $.21 per share, respectively, due to the preferred stock dividends and the accretion of the discount on the preferred stock.
Net interest income decreased $758,000 for the first six months of 2010 compared to the same prior year period. This was primarily due to lower interest income from a lower balance of interest earning assets partially offset by a decrease in the cost of funds. The net interest margin remained stable at 3.66% for the six months ending June 30, 2010 compared to 3.65% in the prior year for the same period. However, the net interest margin increased to 3.78% for the three month period ending June 30, 2010 from a net interest margin of 3.55% for the three month period ending March 31, 2010 and from 3.51% for the three month period ending June 30, 2009. The increase in the net interest margin during the second quarter of 2010 compared to the first quarter of 2010 was primarily due to the deployment of cash and cash equivalents that management was maintaining during the first quarter of 2010 into higher yielding assets. Cash and cash equivalents were back to more historical levels by June 30, 2010. The increase in the net interest margin during the second quarter of 2010 compared to the same period in 2009 was again due to management maintaining a higher cash and cash equivalent balance at lower yields during the second quarter of 2009 along with the cost of interest bearing liabilities decreasing at a greater pace than the decrease in the yield on interest earning assets.
The provision for loan losses was $3.0 million for the three months ending June 30, 2010, which was approximately $290,000 less than the provision for the same period of the prior year. The 2010 second quarter's provision was less than the $3.2 million for the first quarter of 2010 and less than the $3.4 million and $3.7 million in provision for the third and fourth quarters of 2009, respectively. Consumer and commercial loan charge-offs continue to require quarterly provisions for loan losses as well as the required provision for anticipated losses from non-performing loans.
Non-performing loans totaled on $21.2 million on June 30, 2010, up from $16.4 million on March 31, 2010, and $13.5 million on June 30, 2009. As a percentage of total loans, non-performing loans were 2.26% on June 30, 2010, up from 2.02% on March 31, 2010 and 1.49% on June 30, 2009. Horizon's non-performing loan statistics compare favorably to National and State of Indiana peer averages of 2.83% and 4.82%, respectively, as of March 31, 2010, the most recent data available.
The increase of non-performing loans over the prior quarter end was due to an increase in commercial (including commercial real estate) non-performing loans and a reclassification of modified loans resulting in more loans classified as troubled debt restructures ("TDR's"). Non-performing commercial loans totaled $9.8 million on June 30, 2010, up from $7.0 million on March 31, 2010, and $8.0 million on June 30, 2009. The increase during the quarter was primarily due to a $4.6 million loan secured by a hotel that was placed on non-accrual. This loan is current and making interest only payments which are being applied to the principal balance and the real estate collateral is for sale. Additionally, four other loans totaling $572,000 were placed on non-accrual during the quarter. These additions to commercial non-accrual loans were offset by four loans totaling $1.0 million being paid off, six loans totaling $952,000 being fully or partially charged-off, one loan totaling $111,000 placed back on accrual, and one loan totaling $37,000 moved to Other Real Estate Owned ("OREO").
TDR's increased from $1.2 million on March 31, 2010 to $3.4 million on June 30, 2010. Of these, $3.2 million were mortgage loans and $204,000 were consumer loans. The increase was primarily due to seven modified loans reported as TDR's at December 31, 2009 that were moved to performing status as of March 31, 2010. During the second quarter regulatory guidance recommended that all TDR's with modified terms, even when performing, should continue to be reported as TDR's, and as a result, $2.2 million of performing TDR's were returned to TDR status as of June 30, 2010. Three mortgage loans totaling $494,000 were added to TDR status during the quarter and $420,000 were removed by either a sale of the property or because they were moved to OREO.
Non-accrual loans totaled $17.7 million on June 30, 2010, up from $14.9 million on March 31, 2010, and $10.7 million on June 30, 2009. On June 30, 2010, nonaccrual loans to hotel owners totaled $4.6 million, to restaurant operators totaled $1.7 million, and to home builders and land developers totaled $1.7 million. Mortgage loans on non-accrual totaled $4.6 million on June 30, 2010, down from $4.9 million on March 31, 2010, but up from $3.8 million on June 30, 2009. Consumer loans on non-accrual increased to $3.2 million on June 30, 2010, up from $2.9 million on March 31, 2010, and $1.2 million on June 30, 2009.
The increase in the Company's non-performing loans over the past year can be attributed to the continued slow economy and continued high local unemployment causing lower business revenues and increased consumer bankruptcies.
Loans 90 days delinquent but still on accrual totaled $77,000 on June 30, 2010, down from $345,000 on March 31, 2010, and $562,000 on June 30, 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.
OREO and repossessed assets totaled $2.9 million on June 30, 2010, up from $2.2 million on March 31, 2010, and $2.3 million on June 30, 2009. During the quarter, nine properties with a book value of $696,000 on March 31, 2010 were sold. Another nine properties with a book value of $1.4 million on June 30, 2010 were transferred into OREO. One of the properties carried as OREO as of June 30, 2010, a residential lot with a book value of $650,000, is under contract to sell for $950,000. On June 30, 2010, OREO was comprised of 40 properties. Of these, 36 totaling $2.5 million were residential and four totaling $473,000 were commercial. Repossessed assets totaled $70,000 on June 30, 2010, down from $101,000 on March 31, 2010. These were all vehicles.
No mortgage warehouse loans were non-performing as of June 30, 2010, March 31, 2010, or June 30, 2009.
The residential mortgage loan activity continued to be steady through the second quarter of 2010 with $1.7 million of income from the gain on sale of mortgage loans, up $3,000 from the same period in 2009 and up from $1.4 million in the first quarter of 2010. For the six month period ending June 30, 2010, gain on sale of mortgage loans was down $528,000 compared to the same six month period in 2009.
Total other expenses were $256,000 higher in the second quarter of 2010 compared to the second quarter of 2009 and $413,000 higher when comparing the six month periods ending June 30, 2010 and 2009. Approximately $555,000 of expense was recognized during the second quarter of 2010 related to the purchase and assumption of American Trust & Savings Bank and $664,000 was recognized over the first six months of 2010.
- The expected return on the purchase and assumption of American Trust & Savings Bank is estimated to be between $.27 and $.33 in diluted earnings per share on an annual basis.
- Horizon is relocating its South Bend office in the third quarter of 2010 and should lower related occupancy expense by approximately $95,000 per year.
- Horizon will be closing two branches in the third quarter of 2010. One branch was acquired from American Trust & Savings Bank and is located within three miles of an existing Horizon Bank branch. The second branch is located in Harbert, Michigan which has not experienced core deposit growth for several years.
- Horizon opened a new loan and deposit production office in Portage, Michigan on July 2, 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