Horizon Announces Record First Quarter Earnings
April 20, 2011 01:17 PM
Michigan City, Indiana (NASDAQ GM: HBNC) - Horizon Bancorp today announced its unaudited financial results for the three-month period ended March 31, 2011.
- Horizon's first quarter 2011 net income was $2.8 million or $.74 diluted earnings per share, a 54.4% increase in net income from the same period in 2010 and the highest first quarter net income in the Company's history.
- Total deposits grew to over $1.0 billion at March 31, 2011, a $15.9 million increase from December 31, 2010.
- Borrowings decreased by $36.4 million in the first quarter of 2011 from December 31, 2010.
- Net interest income after provisions for loan losses was $9.5 million compared with $7.3 million in the prior year's first quarter.
- Total loans decreased during the first quarter as the balance of mortgage warehouse loans decreased $74.7 million from December 31, 2010 as a result of an increase in long term mortgage interest rates.
- Commercial loans were $335.8 million, up 8% from the first quarter 2010.
- Residential mortgage loans of $164.2 million at March 31, 2011 rose 21% compared with first quarter 2010, partially reflecting loans acquired in the American Trust acquisition.
- Investment securities increased during the first quarter of 2011 as excess cash was invested.
- The Company's mortgage servicing asset recovered $701,000 of impairment during the first quarter of 2011 as mortgage loan refinancing activity slowed.
- The provision for loan losses decreased to $1.5 million for the first quarter of 2011 compared to $2.7 million for the fourth quarter of 2010.
- Horizon's capital ratios continue to be above the regulatory standards for well-capitalized banks.
Craig M. Dwight, President and CEO, stated: "Generating the highest first quarter net income in the Company's history was a significant accomplishment for Horizon and we believe underscores our strict attention to expense control, our ability to generate new banking relationships, and the value of our balanced revenue mix. We continue to gain market share, particularly in commercial banking, as small businesses look to migrate from larger banks. The dramatic reduction in our provision for loan losses represents an encouraging trend we feel can continue in an improving economic environment."
Mr. Dwight also noted that while market-related declines in mortgage warehousing contributed to a decline in total loans and a decrease in the net interest margin from fourth quarter 2010, growth in categories like commercial lending and reduced interest expense provided overall balance. "Our business model worked exactly as it should," explained Dwight.
"As we pursue opportunities to grow organically and through potential acquisitions, we're confident we can apply this strategy of a balanced revenue mix to a significantly larger organization."
Net income for the first quarter of 2011 was $2.8 million or $.74 diluted earnings per share. This compares to $1.8 million or $.44 diluted earnings per share for the same quarter of the prior year. This represents a 54.4% increase from the same period of the prior year and the highest first quarter net income in the Company's history.
Diluted earnings per share were reduced by $.08 for the three months ending March 31, 2011 and $.11 for the three months ending March 31, 2010 due to the preferred stock dividends and the accretion of the discount on the preferred stock. The reduction in the first quarter of 2011 from the impact of the preferred stock dividend and the accretion of the discount on the preferred stock was due to the repayment of $6.25 million of US Treasury's Capital Purchase Plan capital during the fourth quarter of 2010.
Net interest income increased $514,000 for the three-month period ending March 31, 2011 compared to the same time period for the prior year. This increase was due to a higher average balance of interest earning assets and a slight increase in the net interest margin. The net interest margin increased to 3.57% for the three months ending March 31, 2011 compared to 3.55% for the same period in the prior year. The net interest margin decreased in the first quarter of 2011 from 4.01% during the fourth quarter of 2010 due to the reduction in interest earning assets, primarily due to the decline in mortgage warehouse volume, which caused a corresponding increase in average federal funds sold during the quarter at lower yields.
"We anticipate periods in which the mortgage warehousing business will create fluctuations in our total loans and margins," explained Dwight. "In 12 years, we have never experienced a loss in our mortgage warehousing business. It continues to provide many benefits, and as we grow our core business, we anticipate mortgage volume fluctuations will have less impact on the Bank's results, as evidenced by our first quarter's results."
The residential mortgage loan activity during the first quarter of 2011 generated $533,000 of income from the gain on sale of mortgage loans, down $849,000 from the same period in 2010 and down $1.5 million from the fourth quarter of 2010. This decrease during the first quarter was offset by a reduction in commissions paid to mortgage loan originators and $701,000 of impairment recovered on the Company's mortgage servicing asset. In addition, Horizon incurred a gain on the sale of securities of $274,000 during the first quarter of 2011 as the result of an analysis that determined that market conditions provided the opportunity to add gains to capital without negatively impacting long-term earnings.
The provision for loan losses was $1.5 million for the three months ending March 31, 2011, which was approximately $1.7 million less than the provision for the same period of the prior year. The 2011 first quarter provision was $1.2 million less than the 2010 fourth quarter provision and was the lowest quarterly provision for the Company since the second quarter of 2008.
The ratio of allowance for loan losses to total loans increased to 2.34% from 2.11% as of March 31, 2011 and December 31, 2010, respectively. This increase was due to a slight increase in Horizon's loan and lease loss reserve and an overall decline in total loan balances. Horizon's net loans charged off decreased during the first quarter of 2011 to $1.5 million compared to $1.6 million during the fourth quarter of 2010 and $3.1 million during the first quarter of 2010.
Non-performing loans totaled $22.1 million on March 31, 2011, up slightly from $21.4 million on December 31, 2010, and up from $16.3 million on March 31, 2010. As a percentage of total loans non-performing loans were 2.71% on March 31, 2011, up from 2.38% on December 31, 2010. This increase was primarily due to a decrease in total loans. Horizon's 30 to 89 day loan delinquencies were 0.85% and 0.66% of total loans at March 31, 2011 and December 31, 2010, respectively.
The increase of non-performing loans from the prior quarter was due to higher non-performing commercial loans, partially offset by lower non-performing real estate and consumer loans. Non-performing commercial loans increased from $8.1 million on December 31, 2010 to $9.4 million on March 31, 2011. The increase was due to the addition of eleven non-performing loans with a book value of $1.6 million as of March 31, 2011, partially offset by principal pay downs of $148,000, charge-offs totaling $49,000, and one loan with a balance of $45,000 moved to OREO during the quarter. Real estate non-performing loans decreased from $9.3 million on December 31, 2010 to $8.7 million on March 31, 2011. Consumer non-performing loans decreased from $4.0 million on December 31, 2010 to $3.9 million on March 31, 2011.
Real estate and installment non-performing loans on March 31, 2011 included $1.8 million and $2.0 million, respectively, of loans in bankruptcy. This compares to $1.8 million and $2.3 million on December 31, 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. This is the first decline in this category the Company has experienced in recent years as borrowers are coming out of bankruptcy and after six months of performance are being moved back to performing status. The Company's experience with bankrupt loans has demonstrated that some debtors continue to make payments during the bankruptcy process, many reaffirm their obligations to the Company 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. There were two non-performing loans to commercial borrowers in bankruptcy on March 31, 2011 totaling $120,000.
TDR's are also included in the non-performing loans total. TDR's increased from $4.4 million on December 31, 2010 to $4.7 million on March 31, 2011. Of these, $4.0 million were real estate loans, $563,000 were commercial loans, and $173,000 were installment loans. The increase was primarily due to the addition of two mortgage loans during the quarter totaling $362,000. Only $682,000 of TDR's were on non-accrual as of March 31, 2011.
Non-accrual loans totaled $17.4 million on March 31, 2011, up from $16.7 million on December 31, 2010, and $14.9 million on March 31, 2010. On March 31, 2011, non-accrual commercial loans to hotel owners totaled $4.4 million and to home builders and land developers were $1.3 million.
Other Real Estate Owned (OREO) totaled $2.3 million on March 31, 2011, down from $2.7 million on December 31, 2010, but up from $2.2 million on March 31, 2010. During the quarter, seven properties with a book value of $913,000 as of December 31, 2010 were sold. Seven properties with a book value of $537,000 on March 31, 2011 were transferred into OREO during the quarter.
On March 31, 2011, OREO was comprised of 17 properties. Of these, five totaling $1.4 million were commercial properties and twelve totaling $914,000 were residential properties. One property with a book value of $1.0 million is under contract to sell with a closing date scheduled in the third quarter. Four other properties with a book value of $235,000 are under contract and are expected to close in April, 2011.
Total other expenses were $704,000 higher in the first quarter of 2011 compared to the first quarter of 2010. Salaries and employee benefits increased $563,000 compared to the same quarter in 2010. 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 of 2010, the expansion into Portage, Michigan, and annual merit pay increases. Salaries and employee benefits decreased $756,000 compared to the fourth quarter of 2010 primarily due to lower commissions paid to mortgage loan originators and lower bonus accruals.
Dwight concluded: "We are maximizing the value of our continuing investment in facilities, technology, and revenue-generating personnel. We continue to believe that there is an excellent opportunity for Horizon to capitalize on consolidation in the banking industry and will therefore actively examine value-creating opportunities to expand, whether through organic means or acquisitions accretive to earnings."
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