Horizon Announces Record Quarterly Earnings
April 18, 2012 12:21 PM
Michigan City, Indiana (NASDAQ GM: HBNC) - Horizon Bancorp today announced its unaudited financial results for the three-month period ended March 31, 2012.
- First quarter 2012 net income was $4.6 million or $.88 diluted earnings per share, a 79% increase in diluted earnings per share compared to the same period in 2011 and a 29% increase compared to the most recent linked quarter. In addition, this represents the highest quarterly net income and diluted earnings per share in the Company's history.
- Total loans increased $5.4 million during the quarter and $179.0 million over the previous twelve months to $988.6 million at March 31, 2012.
- Net interest income, after provisions for loan losses, for the first three months of 2012 was $12.6 million compared with $9.5 million for the same period in the prior year.
- The provision for loan losses decreased to $559,000 for the first three months of 2012 compared to $1.5 million for the same period in 2011 and $838,000 for the most recent linked quarter.
- Net charge-offs for the first three months of 2012 were $29,000 compared to $1.5 million for the same period in 2011 and $1.1 million for the most recent linked quarter.
- Return on average assets was 1.23% for the first quarter of 2012.
- Return on average common equity was 15.90% for the first quarter of 2012.
- Announced the definitive agreement to acquire Heartland Bancshares, Inc ("Heartland") based in Franklin, Indiana.
- The Company increased its quarterly cash dividend in the first quarter of 2012 to $.13 and paid its 105th consecutive quarterly dividend to shareholders.
- Horizon's tangible book value per share rose to $21.35 compared with $18.11 at March 31, 2011.
- Horizon Bank's capital ratios, including Tier 1 Capital to total risk weighted assets of 11.77% as of March 31, 2012, continue to be well above the regulatory standards for well-capitalized banks.
Craig M. Dwight, President and CEO, stated: "Our employees' commitment to delivering superior service and financial solutions led to significant growth in commercial and consumer lending and deposit relationships, which drove year-over-year increases in many key areas. Horizon built market share in its served markets, and we were very pleased with the performance of our newest location in Kalamazoo County, Michigan."
"A sharp reduction in loan loss reserves and ongoing expense management enabled Horizon to flow more revenue to the bottom line, resulting in our best quarterly performance in Horizon's 139 year history. Although the general economy is far from robust, we have seen positive signs that economic activity is stronger than in the past several years."
Mr. Dwight noted the Bank continues to build core deposits to help maintain a low cost of funding. Non-interest bearing deposits increased to $138.6 million at March 31, 2012 compared with $111.2 million in first quarter 2011, which Mr. Dwight explained reflects a growth in the number of banking relationships with small businesses. Interest bearing transaction accounts rose to $641.1 million in the first quarter 2012 compared with $538.1 million at December 31, 2011 and $531.3 million at March 31, 2011. Time deposits declined as the Bank reduced higher priced deposits and didn't aggressively replace them in the continuing low-interest rate environment.
"We experienced balanced performance and gains in our five key business lines, with particularly strong year-over-year increases in mortgage warehouse lending and originated mortgage loans," explained Mr. Dwight. "We grew lending and deposit market share in our established markets, and we were very pleased with the contributions from newer markets."
"We hope to replicate our culture of performance and service in additional markets, which is one of the key reasons for pursuing our strategic merger with Heartland. The preliminary acquisition-related processes are proceeding smoothly, with both sides working well together to coordinate employee communication, analyze operational and technological integration and other activities." The acquisition is still subject to regulatory approval and approval by the Heartland shareholders.
"Horizon is committed to enhancing shareholder value by utilizing our earnings both for growth and returning a portion of earnings to shareholders as a cash dividend. Our Board of Directors believes this represents a prudent and balanced approach to rewarding shareholders for their support and pursuing our goal of becoming a $3 billion asset company in the next few years. This is evidenced by Horizon's recent acquisition announcement and its increase in the quarterly dividend during the first quarter from 12 cents to 13 cents per share."
Net income for the first quarter of 2012 was $4.6 million or $.88 diluted earnings per share, up 79% compared to $2.8 million or $.49 diluted earnings per share in the first quarter of 2011. This represents the highest level of net income for a single quarter in the Company's 138-year history.
The net interest margin was 3.87% in the first quarter of 2012 up from 3.57% for the three-month period ending March 31, 2011 but down 8 basis points (Or 0.08%) from the three months ending December 31, 2011. This decrease from the fourth quarter of 2011 primarily reflected a decrease in the yield on interest-earning assets greater than the decrease in the rates paid on interest-bearing liabilities.
Residential mortgage loan activity during the first quarter of 2012 generated $2.3 million in income from the gain on sale of mortgage loans; an increase of $1.7 million from the same period in 2011 and a decrease of $189,000 from the fourth quarter of 2011.
Mr. Dwight stated, "Since first quarter 2011, we increased our mortgage loan origination team to 28 individuals from 22, and the team's strong performance was reflected in originations and gains on sale of loans. In the current low-interest rate environment, the Bank primarily retains adjustable rate mortgages and sells long-term fixed-rate loans to the secondary market."
Total loans increased by $5.4 million from $983.2 million at December 31, 2011 to $988.6 million at March 31, 2012. Mortgage warehouse loans increased by $4.9 million and consumer loans increased by $4.0 million. Commercial loans decreased by $1.9 million and residential mortgage loans decreased by $1.6 million.
The provision for loan losses was $559,000 for the first quarter of 2012, which was approximately $1.0 million less than the provision for the same period of the prior year and $279,000 less than the previous quarter. The lower provision for loan losses was primarily related to a decrease in charged off loans and $332,000 in commercial loan recoveries.
The ratio of allowance for loan losses to total loans increased to 1.94% as of March 31, 2012 from 1.89% as of December 31, 2011. The increase in the ratio was primarily due to additional specific reserves placed on non-performing loans.
"We feel the overall trend of reduced provision for loan loss reserve expense will continue," explained Mr. Dwight. "We believe our residential, commercial and consumer loan portfolios are markedly stronger than any time in the past four years. Although we added three commercial accounts to non-performing assets, we also placed several back on accrual as the loans were brought current, an encouraging indication of economic improvement. Delinquencies are down compared with both year-end 2011 and first quarter 2011, which we interpret as positive indicators of economic improvement and our ability to manage risk and credit quality."
Non-performing loans totaled $21.1 million on March 31, 2012, down from $22.1 million on March 31, 2011, and up from $20.1 million on December 31, 2011. As a percentage of total loans, non-performing loans were 2.11% on March 31, 2012, down from 2.71% on March 31, 2011, and up slightly from 2.02% on December 31, 2011.
The increase of non-performing loans in the first quarter of 2012 from the prior quarter was primarily due to an increase of non-performing commercial loans from $8.0 million on December 31, 2011 to $9.0 million on March 31, 2012. Non-performing mortgage loans increased from $8.5 million on December 31, 2011 to $8.7 million on March 31, 2012. Non-performing consumer loans declined from $3.7 million on December 31, 2011 to $3.4 million on March 31, 2012.
Non-accrual loans, excluding non-accrual troubled debt resturcturings, were $15.5 million on March 31, 2012, up from $14.4 million on December 31, 2011, but down from $17.4 million on March 31, 2011. Loans 90 days delinquent but still on accrual totaled $28,000 on March 31, 2012, down from $37,000 on December 31, 2011, and $57,000 on March 31, 2011. Loans 30 to 89 days delinquent declined to $2.93 million in first quarter 2012 compared with $3.28 million at December 31, 2011 and $6.95 million at March 31, 2011. At .30% of total loans, this represents the lowest levels of loans 30-89 days delinquent since 2007.
Other Real Estate Owned (OREO) totaled $803,000 on March 31, 2012, down significantly from $2.8 million on December 31, 2011, and $2.3 million on March 31, 2011. During the quarter 15 properties with a book value of $2.1 million as of December 31, 2011 were sold. Only one property with a book value of $107,000 was transferred into OREO. No write downs on OREO occurred during the quarter.
Total non-interest expenses were $902,000 higher in the first quarter of 2012 compared to the first quarter of 2011 and $1.9 million lower compared to the three months ending December 31, 2011. Salaries and employee benefits increased $602,000 compared to the same quarter in 2011 and was approximately the same as the three months ending December 31, 2011. This increase over the previous year is primarily the result of annual merit pay increases, increase in employee benefits costs and commission and bonus expense for the first quarter results in 2012. Loan expense and other losses were down $608,000 and $1 million, respectively, for the three months ending March 31, 2012 compared the three months ending December 31, 2011. This was primarily due to less credit and OREO related costs. Included in the first quarter of 2012's non-interest expense was $168,000 of transaction expenses related to the transaction with Heartland.
"It's important to note that we continue to invest in quality people and maintain a very disciplined results-oriented corporate culture that compensates superior performance," explained Mr. Dwight. "We attempt to capitalize on every opportunity to reduce costs related to facilities, equipment and technology and focus on improvements to productivity. We believe our ability to cost-effectively deliver superior products and service has contributed to Horizon's earnings growth."
Horizon opened a full service branch in Portage, Michigan on March 5, 2012. This new location relocates the existing loan production office that has been located in Portage, Michigan and will serve the Kalamazoo and Portage markets. Horizon also opened its third full service branch in Valparaiso, Indiana on April 16, 2012. This branch will expand services on south side of Valparaiso.
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, NA. 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 management's 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 Horizon's reports filed with the Securities and Exchange Commission, including those described in "Item 1A Risk Factors" of Part I of Horizon's 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
Fax: (219) 874-9280