Horizon Bancorp Announces Record Quarterly Earning
July 18, 2013 04:55 AM
Michigan City, Indiana (NASDAQ GM: HBNC) – Horizon Bancorp today announced its unaudited financial results for the three and six-month periods ended June 30, 2013.
- Second quarter 2013 net income rose 15.4% compared to the same period in 2012 to $5.7 million or $.62 diluted earnings per share, the highest quarterly net income in the Company’s history.
- Net income for the first six months of 2013 rose 15.3% compared to the same period in 2012 to $11.0 million or $1.20 diluted earnings per share, the highest first half net income in the Company’s history.
- Net interest income, before provisions for loan losses, for the first six months of 2013 was $32.6 million compared with $26.2 million for the same period of 2012.
- Non-interest income rose 22.3% to $14.3 million for the first six months of 2013 compared with $11.7 million for the same period of 2012.
- Return on average assets was 1.29% for the second quarter of 2013 and 1.25% for the first six months of 2013.
- Return on average common equity was 14.67% for the second quarter of 2013 and 14.31% for the first six months of 2013.
- Total loans increased $27.9 million during the quarter and $120.5 million compared to June 30, 2012 to $1.1 billion at June 30, 2013.
- Commercial loans increased $29.1 million during the quarter and $145.7 million compared to June 30, 2012 to $502.2 million at June 30, 2013, marking the first time in Horizon’s history that commercial loans surpassed the $500 million milestone.
- Tangible book value per share decreased to $14.42 at June 30, 2013, compared to $14.64 and $14.81 at March 31, 2013 and June 30, 2012, respectively, reflecting the decrease in accumulated other comprehensive income and the increase in outstanding shares as a result of the Heartland acquisition.
- Horizon Bank’s capital ratios, including Tier 1 Capital to Average Assets of 8.84% and Total Capital to Risk Weighted Assets of 13.22% as of June 30, 2013, continue to be well above the regulatory standards for well-capitalized banks.
Craig M. Dwight, Chairman and CEO, commented: “Horizon Bancorp’s commitment to identifying and maximizing key revenue opportunities, combined with operational efficiency and productivity, continue to be evident in our earnings growth. Our strategy of generating a balanced revenue stream in a variety of economic scenarios, and the ability to respond to changing conditions, again proved its value.”
“The increase in interest rates impacted residential mortgage refinancings, mortgage warehousing volume and the gains generated from mortgage loan sales. At the same time, we capitalized on the improving housing market and business environment to grow purchase mortgage originations and commercial lending. Fiduciary activity continued to accelerate, as reflected in the 11.8% increase in trust fee income for the first six months of 2013 compared to the same period of 2012, and we believe this resulted from customers discovering the expert guidance we provide will maximize their investment returns in complex and volatile market conditions.”
Highlighting the Company’s balanced approach to building revenue, Dwight cited examples such as the 16.7% growth in residential mortgage originations to $232.9 million in the first half 2013 compared with $199.6 million in the first half 2012. This volume increase, he noted, was achieved despite less reliance on refinancing activity. Purchase mortgage originations represented 54.6% of total mortgage originations for the first half 2013 compared to 41.8% for the same period of 2012. In the month of June 2013, purchase mortgage originations accounted for 72.9% of all mortgage originations.
“Another highlight is the continued growth and strong revenue contribution from our commercial banking division. Our Kalamazoo and Indianapolis business banking teams, in particular, continue to produce strong results. Their success has not been from loan volume alone but also in developing full-service relationships with checking and deposit accounts, fee-generating merchant services and credit and debit cards. This comprehensive and relationship approach to banking has been a critical aspect of our success in building the commercial banking business.”
“We continue to support our commercial, consumer and mortgage lending activities with a solid and growing base of low-cost core deposits,” explained Dwight. “Since our acquisition of Heartland Bancshares, Inc. in July of 2012, we have grown the Heartland deposit base by 11.0% to $234.4 million as of June 30, 2013 from $211.2 million in deposits acquired in the acquisition. I believe this growth reflects very positively on the success of the transition and the outstanding job our employees have done to create strong banking relationships with our customers.”
Non-interest bearing deposits increased 56.0% to $213.7 million at June 30, 2013 compared to $137.0 million at June 30, 2012, reflecting the growth in the number of small business banking relationships and the acquisition of Heartland, which had a significant number of business relationship customers. Interest bearing transaction accounts rose to $772.8 million at June 30, 2013 compared to $769.8 million at December 31, 2012 and $634.9 million at June 30, 2012.
Income Statement Highlights
Net income for the second quarter of 2013 increased 15.4% to $5.7 million or $.62 diluted earnings per share, compared to $4.9 million or $.62 diluted earnings per share in the second quarter of 2012. This represents the highest quarterly net income in the Company’s history. In addition, diluted earnings per share during the second quarter of 2013 equaled the diluted earnings per share for the second quarter of 2012, which was the period prior to the Heartland acquisition in July of 2012.
Net income for the first six months of 2013 increased 15.3% to $11.0 million or $1.20 diluted earnings per share, compared to $9.5 million or $1.21 diluted earnings per share for the first six months of 2012. This is the highest six months of net income in the Company’s history.
The Company’s net interest margin was 4.21% during the three-month period ended June 30, 2013, up 42 basis points from 3.79% for the three-month period ending June 30, 2012 and up 11 basis points from the three-month period ending March 31, 2013. The increase in the margin during the second quarter of 2013 compared to the same period in 2012 was primarily due to the recognition of approximately $2.4 million of interest income from Heartland loan discounts being accreted and discounts recognized from loans paying off, along with a reduction in the rate paid on interest bearing liabilities. Excluding the interest income recognized from the loan discounts, the margin would have been 3.61% for the three-month period ending June 30, 2013. The net interest margin was 4.17% for the six months ending June 30, 2013, up from 3.84% for the same period in 2012. Excluding the interest income recognized from the loan discounts of $4.3 million for the first six months of 2013, the margin would have been 3.66% for the six-month period ending June 30, 2013.
Residential mortgage lending activity during the second quarter of 2013 generated $2.8 million in income from the gain on sale of mortgage loans, a decrease of $299,000 from the first quarter of 2013. The origination volume in the second quarter of 2013 was similar to the first quarter of 2013, and the reduction in the gain on sale of mortgages was primarily due to the percentage earned on the sale of these loans.
Total loans decreased by $73.0 million from $1.2 billion at December 31, 2012 to $1.1 billion at June 30, 2013 as mortgage warehouse loans decreased by $96.5 million, residential mortgage loans decreased by $7.1 million and consumer loans decreased by $11.2 million, partially offset by an increase in commercial loans of $41.8 million.
Commercial loans increased from $460.5 million at December 31, 2012 to $502.2 million at June 30, 2013. Dwight noted the continued growth of the commercial loan portfolio, which resulted in the significant achievement of surpassing the $500 million milestone in commercial loan balances for the first time in the Company’s history, helped offset the decrease in the other loan portfolios.
The provision for loan losses was $729,000 for the second quarter of 2013, which was $520,000 higher than the provision for the same period of the prior year and $1.4 million less than the previous quarter. The higher provision for loan losses during the second quarter of 2013 compared to the prior year was primarily related to organic loan growth. The lower provision for loan losses during the second quarter of 2013 compared to the previous quarter was primarily due to the $1.4 million of additional loan loss provision expense experienced in the previous quarter relating to credit losses from certain Heartland loans that exceeded the loan discounts recorded at the time of the acquisition. For the first six months of 2013, the provision for loan losses was $2.8 million, which was $2.0 million more than the provision for the same period of the prior year.
The ratio of the allowance for loan losses to total loans increased to 1.67% as of June 30, 2013 from 1.52% as of December 31, 2012. The increase in the ratio was primarily due to the decrease in total loans outstanding of $73.0 million during the first six months of 2013.
Non-performing loans totaled $25.6 million as of June 30, 2013, up from $23.8 million as of December 31, 2012 and $20.8 million as of June 30, 2012. Non-performing consumer loans increased $2.9 million from December 31, 2012, which was partially offset by a decrease of $1.9 million in non-performing commercial loans. The increase in non-performing consumer loans from December 31, 2012 was primarily due to the addition of three large home equity lines of credit totaling $2.0 million, which have specific reserves included in the allowance for loan losses. The increase from June 30, 2012 was due to the Heartland acquisition. Excluding Heartland loans, non-performing loans totaled $19.5 million at June 30, 2013, an increase of $3.0 million from $16.5 million at December 31, 2012 and a decrease of $1.3 million from $20.8 million at June 30, 2012. As a percentage of total loans, non-performing loans were 2.27% at June 30, 2013, up from 1.97% at December 31, 2012 and 2.07% at June 30, 2012.
At June 30, 2013, loans acquired in the Heartland acquisition represented $6.2 million in non-performing, $16.2 million in substandard and $728,000 in delinquent loans, which compares to $7.3 million in non-performing, $18.1 million in substandard and $3.4 million in delinquent loans represented at December 31, 2012.
Total non-interest expense was $5.4 million higher in the first six months of 2013 compared to the first six months of 2012 and $816,000 higher in the three-month period ending June 30, 2013 compared to the previous quarter. Salaries and employee benefits increased $2.7 million in the first six months of 2013 compared to the same period in 2012 and increased $217,000 in the second quarter of 2013 compared to the previous quarter. The increase over the previous year was primarily the result of changes to annual merit pay, employee benefits costs, commissions earned, bonus accruals and Horizon’s investment in growth markets. In addition, some of the increase in the first six months of 2013 compared to the first six months of 2012 was also related to the Heartland acquisition.
Dwight concluded: “Our managers and employees continue to do an excellent job of identifying opportunities to win new customers and expand relationships with current Horizon clients. We believe our financial performance reflects the fact that our advisors have been able to meet and exceed customer expectations time and again, even in a far from robust economy. We continue looking for opportunities to build on this momentum and expand our footprint. During the second quarter, we entered into an agreement to purchase land in Carmel, Indiana, a vibrant community and business center north of Indianapolis, with plans to establish a full-service office. We also plan to expand our Indianapolis loan production office into a full-service branch in 2013 and have added new loan officers to serve our Lake County, Indiana market.”
“Navigating today’s economic and regulatory conditions demands sharp focus and opportunistic action. We are maintaining that focus to achieve our goals for growth, financial performance and generating value for our shareholders.”
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, 2012. 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.
Mark E. Secor
Chief Financial Officer
Fax: (219) 874-9280