Horizon Bancorp Announces Increase in 3rd Quarter
October 20, 2010 02:11 PM
Michigan City, Indiana (NASDAQ GM: HBNC) - Horizon Bancorp today announced its unaudited financial results for the three and nine month periods ended September 30, 2010.
- Horizon's third quarter 2010 net income was $3.3 million or $.88 diluted earnings per share, a 30.3% increase in net income from the previous quarter and a 39.1% increase from the same period in 2009.
- Horizon's net income for the nine months ended September 30, 2010, was $7.6 million or $1.96 diluted earnings per share compared to $7.1 million or $1.84 diluted earnings per share for the same period of the prior year.
- The net interest margin increased to 3.84% for the three months ending September 30, 2010 as the rate paid on interest bearing liabilities decreased during the quarter more than the yield received on interest earning assets.
- The activity in mortgage warehouse lending increased the average loan balance during the quarter, increasing interest income.
- Horizon continued to experience strong residential mortgage loan activity during the third quarter providing $2.5 million of income from the gain on sale of mortgage loans.
- Horizon's quarterly provision for loan losses decreased by approximately $343,000 from the provision taken during the second quarter of 2010.
- The ratio of allowance for loan losses to total loans increased to 1.85% from 1.77% at June 30, 2010 as Horizon loan and lease loss reserve continues to build for probable incurred losses inherent in the portfolio.
- Horizon's net loans charged off declined during the third quarter to $1.2 million compared to $2.6 million during the second quarter of 2010.
- Horizon's balance of Other Real Estate Owned ("OREO") and repossessed assets increased approximately $1.2 million, to $4.1 million, during the third quarter as certain non-performing loans transferred to OREO.
- Horizon's non-performing loans increased approximately $507,000 from June 30, 2010 to September 30, 2010 and 30 to 89 days delinquent loans increased $447,000 during the same period.
- Horizon's 30 to 89 day loan delinquency remained steady at 0.93% and 0.92% of total loans at September 30, 2010 and June 30, 2010, respectively.
- Horizon's non-performing loans to total loans ratio as of September 30, 2010 was 2.22%, which compares favorably to National and State of Indiana peer averages of 4.77% and 2.78%, respectively, as of June 30, 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, "We are extremely proud of Horizon's year-to-date results and the incredible effort put forth by our employees to maintain our performance at such high levels. Horizon's year-to-date financial performance is on pace to achieve its eleventh year of record earnings. We truly are fortunate to have such a dedicated team that can deliver results."
Net income for the third quarter of 2010 was $3.3 million or $.88 diluted earnings per share. This compares to $2.4 million or $.61 diluted earnings per share for the same quarter of the prior year. Net income for the nine months ended September 30, 2010 was $7.6 million or $1.96 diluted earnings per share. This compares to $7.1 million or $1.84 diluted earnings per share for the same period of the prior year.
Diluted earnings per share for both the three and nine month periods ending September 30, 2010 and September 30, 2009 were reduced by $.11 per share and $.32 per share, respectively, due to the preferred stock dividends and the accretion of the discount on the preferred stock.
Net interest income increased $1.9 million and $1.1 million for the three and nine month periods ending September 30, 2010 compared to the same time periods for the prior year. This increase was primarily due to an increase in interest income from a higher average balance of interest earning assets along with a decrease in the cost of funds. The net interest margin increased to 3.72% for the nine months ending September 30, 2010 compared to 3.64% for the same period in the prior year. The net interest margin has been increasing throughout 2010. At three months ending March 31, 2010, June 30, 2010, and September 30, 2010, the net interest margin was 3.55%, 3.78%, and 3.84%, respectively. The increase in the net interest margin during the third quarter of 2010 was primarily due to the reduction in cost of funds from lower deposit rates and the repricing of certificates of deposits and wholesale funding into lower rate instruments.
The provision for loan losses was $2.7 million for the three months ending September 30, 2010, which was approximately $759,000 less than the provision for the same period of the prior year. The 2010 third quarter provision was the lowest compared to any of the previous four quarters as net charge-offs also declined to their lowest level over that same period.
Non-performing loans totaled $21.7 on September 30, 2010, up slightly from $21.2 million on June 30, 2010 and up from $16.5 million on September 30, 2009. As a percentage of total loans non-performing loans were 2.22% on September 30, 2010, down from 2.26% on June 30, 2010, but up from 1.87% on September 30, 2009. Horizon's non-performing loans to total loans ratio as of September 30, 2010 compares favorably to National and State of Indiana peer averages1 of 4.77% and 2.78%, respectively, as of June 30, 2010, the most recent data available.
The increase of non-performing loans from the prior quarter was due to an increase in residential mortgage and consumer installment non-performing loans, partially offset by lower commercial (which includes commercial real estate) non-performing loans. Residential mortgage non-performing loans increased from $7.9 million on June 30, 2010 to $8.5 million on September 30, 2010. Consumer installment non-performing loans increased from $3.5 million on June 30, 2010 to $4.4 million on September 30, 2010. Non-performing commercial loans declined from $9.8 million on June 30, 2010, to $8.9 million on September 30, 2010. The change in non-performing commercial loans during the quarter was the result of four non-performing loans totaling $2.0 million being moved to OREO, $471,000 of charge offs, and $856,000 of pay downs. There were nine new non-performing loans added totaling $1.9 million and one new troubled debt restructure ("TDR") for $427,000. The new non-performing loans during the quarter included a $910,000 loan secured by a restaurant that is current but placed on non-accrual due to other deterioration of the credit factors.
Residential mortgage and consumer installment non-performing loans at September 30, 2010 include $896,000 and $2.3 million, respectively, of loans in bankruptcy. This compares to $261,000 and $1.8 million at June 30, 2010. These loans are not considered TDR's while they are going through bankruptcy. The bankruptcy process can take six to eighteen months. Therefore, the amount of loans in bankruptcy included in the Company's non-performing loans continues to increase, which indicates that this cycle potentially has not peeked. The Company's experience with bankrupt loans has demonstrated that some continue to make payments during the bankruptcy process, many reaffirm when they come out of bankruptcy, and some 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 for allowance for loan losses. No commercial loans are currently in bankruptcy.
TDR's are also included in the non-performing loans. TDR's increased from $3.4 million at June 30, 2010 to $3.9 million on September 30, 2010. Of these, $3.3 million were residential mortgage loans, $427,000 were commercial loans, and $202,000 were consumer installment loans. The increase was primarily due to the addition of one commercial loan totaling $427,000. These TDR's were accruing interest and were not over 30 days delinquent based on their restructured terms, except for one consumer installment loan for $37,000, and the new commercial loan for $427,000, both of which were on non-accrual.
Non-accrual loans totaled $16.8 million on September 30, 2010, down from $17.7 million on June 30, 2010, but up from $15.7 million on September 30, 2009. On September 30, 2010, nonaccrual loans to hotel owners totaled $4.6 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 $833,000 on September 30, 2010, up from $77,000 on June 30, 2010, and $856,000 on September 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.
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 an increase in consumer bankruptcies. Business conditions in our markets are improving but remain weak.
Other Real Estate Owned (OREO) totaled $3.9 million on September 30, 2010, up from $2.8 million on June 30, 2010, and $1.7 million on September 30, 2009. During the quarter 24 properties with a book value of $1.6 million on June 30, 2010 were sold. Another nine properties with a book value of $3.0 million on September 30, 2010 were transferred into OREO. On September 30, 2010, OREO was comprised of 29 properties. Of these, 9 totaling $2.5 million were commercial and 20 totaling $1.5 million were residential. Repossessed personal property totaled $107,000 on September 30, 2010, up from $70,000 on June 30, 2010.
No mortgage warehouse loans were non-performing as of September 30, 2010, June 30, 2010, or September 30, 2009.
The residential mortgage loan activity was strong through the third quarter of 2010 with $2.5 million of income from the gain on sale of mortgage loans, up $1.3 million from the same period in 2009 and up $800,000 from the second quarter of 2010. For the nine month period ending September 30, 2010, gain on sale of mortgage loans was up $668,000 compared to the same nine month period in 2009.
Increased pre-payment speeds on the mortgage loan servicing portfolio caused the servicing asset to be impaired during the third quarter resulting in a $331,000 net loss on mortgage servicing net of impairment compared to $35,000 of income for the same period in 2009.
Total other expenses were $2.3 million higher in the third quarter of 2010 compared to the third quarter of 2009 and $2.7 million higher when comparing the nine month periods ending September 30, 2010 and 2009. Salaries and employee benefits increased $1.4 million and $1.7 million for the three and nine month periods ending September 30, 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 nine 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 first nine months of 2010.
- Horizon closed two branches in the third quarter of 2010. One branch was acquired from American Trust & Savings Bank and was located within three miles of an existing Horizon Bank branch. The second branch was located in Harbert, Michigan and had not experienced core deposit growth for several years.
- Horizon relocated its South Bend office in the third quarter of 2010, which should lower related occupancy expense by approximately $95,000 per year.
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