Horizon Bancorp Announces Record Earnings for 2011
January 18, 2012 12:37 PM
Michigan City, Indiana (NASDAQ GM: HBNC) - Horizon Bancorp today announced its unaudited financial results for the three and twelve month periods ended December 31, 2011. All share data has been adjusted to reflect Horizon's three-for-two stock split paid on December 9, 2011.
- Fourth quarter 2011 net income was $3.5 million or $.68 diluted earnings per share, a 23% increase in net income from the same period in 2010 and the highest quarterly net income and diluted earnings per share in the Company's history.
- For the twelve months ending 2011, net income was $12.8 million or $2.27 diluted earnings per share, a 22% increase in net income from 2010 and the highest annual net income and diluted earnings per share in the Company's history.
- This represents the Company's 12th consecutive year of record annual earnings.
- Total loans increased $57.4 million during the quarter and $100.3 million during the year to $983.2 million at December 31, 2011.
- Total assets grew to a record $1.55 billion at December 31, 2011 compared to $1.49 billion at September 30, 2011 and $1.40 billion at December 31, 2010.
- Net interest income, after provisions for loan losses, for the twelve months of 2011 was $42.8 million compared with $36.1 million for the same period in the prior year.
- The provision for loan losses decreased to $5.3 million for the twelve months of 2011 compared to $11.6 million for the same period in 2010. Fourth quarter 2011 provision for loan losses was $838,000 compared with $2.67 million in fourth quarter 2010.
- Return on average common equity was 11.20% for 2011.
- During the fourth quarter of 2012 the Company announced a 3-for-2 stock split and shares were issued for the split on December 9, 2011.
- The Company increased its cash dividend in 2011 and paid its 104th consecutive quarterly dividend to shareholders.
- Horizon's tangible book value per share rose to $20.37 compared with $17.36 (split adjusted) at the end of 2010.
- In 2011 the Company redeemed all its preferred shares issued to the U.S. Treasury Department under its TARP Capital Purchase Program ("CPP").
- Horizon's capital ratios, including Tier 1 Capital to total risk weighted assets of 11.89% as of December 31, 2011, continue to be well above the regulatory standards for well-capitalized banks.
Craig M. Dwight, President and CEO, stated: "Achieving record assets and net income and concurrently growing loans and deposits and reducing Horizon's loan loss provision in a recessionary economy was a gratifying accomplishment. Horizon's balanced business model proved its value in 2011. For example, our consumer lending was stable compared with 2010; however, our mortgage and mortgage warehouse lending enabled Horizon to capture the benefits of strong nationwide new mortgage and refinancing activity and a pick-up in business activity. The counter-cyclical structure of our revenue model enables us to achieve balanced revenue and growth. Year-over-year, the Bank has increased return on average equity and return on average assets."
"A key goal in 2011 was to build core deposits to help maintain a low cost of funding. We ended 2011 with $1.01 billion in total deposits compared with $985.5 million in 2010, and we accomplished this growth even as we reduced higher-priced time deposits."
Dwight added that Horizon continues to make strategic investments in people and activities that directly support net income generation, including adding four mortgage loan production staff members in Portage, Michigan office. He also noted the bank intends to open new full service branches in Valparaiso, Indiana and Portage, Michigan during first quarter 2012.
"There are opportunities to expand in our existing markets and enter new markets in which community banks are under-represented," explained Dwight. "Additionally, our strong capital position and success generating loan and deposit growth supports our ability to consider community bank or branch acquisitions in the highly competitive and fragmented Indiana and Southwest Michigan markets."
Net income for the fourth quarter of 2011 was $3.5 million or $.68 diluted earnings per share, up 22.7% compared to $2.9 million or $.50 diluted earnings per share in the fourth quarter of 2010. Diluted earnings per share were reduced by $0.01 and $0.26, respectively, for the three and twelve months ending December 31, 2011, compared to reductions of $0.07 and $0.28, respectively, for the three and twelve months ending December 31, 2010. The reduction in the fourth quarter of 2011 resulted from the repayment of CPP capital during the third quarter of 2011 and replacing the remaining $12.5 million with the Small Business Lending Fund capital.
Net income for the year ending 2011 rose 22.4% to $12.8 million or $2.27 diluted earnings per share, compared with $10.5 million or $1.81 diluted earnings per share in 2010. These results were the highest level of net income for a single quarter and for a year in the Company's 138-year history.
The net interest margin increased to 3.95% in the fourth quarter of 2011 from 3.76% for the three-month period ending September 30, 2011. This increase in the fourth quarter of 2011 primarily reflected an increase in average mortgage warehouse loan volume and balances, which were funded by an increase in average short-term borrowing, resulting in an expanded interest rate spread on interest earning assets. Borrowings in the fourth quarter of 2011 increased by $34.0 million from September 30, 2011, all in short-term instruments primarily to fund the increase in mortgage warehouse lending.
Residential mortgage loan activity during the fourth quarter of 2011 generated $2.5 million in income from the gain on sale of mortgage loans; an increase of $454,000 from the same period in 2010.
Total loans increased by $100.3 million from $882.9 million at December 31, 2010 to $983.2 million at December 31, 2011. Commercial loans increased by $22.4 million, mortgage warehouse loans increased by $84.6 million, residential mortgage loans decreased by $5.3 million, and consumer loans decreased by $1.3 million.
Dwight explained, "The number of retail households served by Horizon grew in 2011, and we believe this provides opportunities to grow the number of products and services utilized by these customers in the future. We were particularly encouraged by an increase in commercial lending, which we believe indicates our ability to build and win banking relationships with small businesses, which is a significant focus. Our focus on increasing our relationships with small businesses also contributed to an increase in our total direct deposit accounts at year-end compared with 2010."
The provision for loan losses was $838,000 for the fourth quarter of 2011, which was approximately $1.8 million less than the provision for the same period of the prior year. The 2011 fourth-quarter provision was $726,000 less than the 2011 third quarter provision. The lower provision for loan losses was primarily related to a decrease in non-performing loans in the fourth quarter.
The ratio of allowance for loan losses to total loans decreased to 1.89% as of December 31, 2011 from 2.11% as of December 31, 2010. The decrease in the ratio was due to an overall increase in total loan balances as the total balance for allowance for loan losses decreased from $19.1 million to $18.9 million for year-ends 2010 and 2011 respectively.
Non-performing loans totaled $20.1 million on December 31, 2011, down from $23.6 million on September 30, 2011, and from $21.4 million on December 31, 2010. As a percentage of total loans, non-performing loans were 2.02% on December 31, 2011, down from 2.52% on September 30, 2011, and 2.38% on December 31, 2010.
Dwight added, "The continued decline in our need to reserve for loan losses and a 44% decline in loans 30 to 89 days delinquent at year-end 2011 as compared with 2010 demonstrate Horizon's ability to effectively manage risk and a general improvement in borrowers' economic circumstances. Horizon's strategy of maintaining a broad and diversified loan portfolio has enabled us to minimize exposure to large credits."
The decrease of non-performing loans in the fourth quarter of 2011 from the prior quarter was primarily due to the payoff of a $4.3 million non-performing commercial loan secured by a hotel property during the fourth quarter. As a result, non-performing commercial loans declined from $12.1 million on September 30, 2011 to $8.0 million on December 31, 2011. Non-performing mortgage loans increased from $7.2 million on September 30, 2011 to $8.5 million on December 31, 2011. Non-performing consumer loans declined from $4.3 million on September 30, 2011 to $3.7 million on December 31, 2011.
Real estate and consumer non-performing loans in bankruptcy on December 31, 2011 totaled $1.5 million and $2.0 million, respectively. This compares to $1.5 million and $1.9 million respectively, on September 30, 2011. 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. The Company's experience with loans in bankruptcy has demonstrated that some debtors continue to make payments during the bankruptcy process, many reaffirm their obligation to Horizon 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. Recently, the trend has improved with fewer loans in the bankruptcy process. There were four non-performing loans, totaling $435,000, to commercial borrowers in bankruptcy on December 31, 2011.
TDR's are also included in the non-performing loans total. TDR's totaled $5.7 million on both December 31, 2011 and September 30, 2011. Of these, $3.8 million were mortgage loans, $1.1 million were commercial loans, and $883,000 were consumer loans. In addition, $3.5 million of TDR's were accruing interest as of December 31, 2011, compared to $4.0 million accruing interest at September 30, 2011.
Non-accrual loans, excluding non-accrual TDR's, were $14.4 million on December 31, 2011, down from $17.8 million on September 30, 2011 and $16.7 million on December 31, 2010. The decrease in the most recent quarter was primarily due to the aforementioned payoff of a commercial loan with a $4.3 million balance on September 30, 2011. Non-accrual commercial loans were the largest component at $6.9 million. Non-accrual commercial loans secured by retail income properties, the largest concentration, totaled $3.2 million. Loans 90 days delinquent but still on accrual totaled $37,000 on December 31, 2011, down from $97,000 on September 30, 2011, and $358,000 on December 31, 2010. 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.
Other Real Estate Owned (OREO) totaled $2.8 million on December 31, 2011, down from $3.6 million on September 30, 2011, but up from $2.7 million on December 31, 2010. During the quarter four properties with a book value of $222,000 as of September 30, 2011 were sold. Another four with a book value of $218,000 were transferred into OREO. Eighteen properties were sold with additional loss or written down by a total of $735,000 during the fourth quarter. On December 31, 2011, OREO was comprised of 26 properties. Of these, four totaling $1.1 million were commercial and 22 totaling $1.7 million were residential real estate. In addition, Horizon currently has offers to purchase on approximately $1.8 million of its $2.8 million in OREO properties.
Total non-interest expenses were $1.5 million higher in the fourth quarter of 2011 compared to the fourth quarter of 2010 and $3.6 million higher for the twelve months ended December 31, 2011 compared to the same period in the prior year. Salaries and employee benefits decreased $154,000 compared to the same quarter in 2010 and increased $785,000 compared to the same twelve-month period of 2010. This twelve-month increase is primarily 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; expansion into Portage, Michigan, and annual merit pay increases. In the fourth quarter of 2011 other losses included $598,000 in OREO write downs and $370,000 from write downs on two bank-owned properties from branches that were closed in 2010. Horizon currently has offers to purchase both branches.
Dwight concluded: "We are constantly striving to operate as efficiently as possible and to generate greater productivity from our people and physical resources. We reward performance, which is a key reason we believe Horizon Bank is perceived as a great place to work. In 2011, we fully integrated American Trust & Savings Bank, retaining more than 90% of its customers and we met our goal of a payback on our initial cash investment within a year of the acquisition."
"We believe that excellent opportunities remain for Horizon to grow, so we will continue to make investments that support revenue generation. We are well-positioned to pursue quality loans and deposits throughout our markets."
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.
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, 2010, and in Item 1A "Risk Factors" of Part II of Horizon's Form 10-Q for the quarter ended September 30, 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