Horizon's Record Quarterly and Six-month Earnings
July 18, 2012 09:02 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, 2012.
- Second quarter 2012 net income was $4.9 million or $.93 diluted earnings per share, a 66% increase in diluted earnings per share compared to the same period in 2011. In addition, this represents the highest quarterly net income and diluted earnings per share in the Company's 139-year history.
- Horizon's net income for the first half of 2012 was $9.5 million or $1.81 diluted earnings per share, a 72% increase in diluted earnings per share compared to the same period in 2011 and the highest first half net income in the Company's history.
- Total loans increased $8.6 million during the quarter and $157.9 million over the previous twelve months to $997.1 million at June 30, 2012.
- Net interest income, after provisions for loan losses, for the first six months of 2012 was $25.4 million compared with $19.7 million for the same period in the prior year.
- The provision for loan losses decreased to $768,000 for the first six months of 2012 compared to $2.9 million for the same period in 2011.
- Net charge-offs for the first six months of 2012 were $1.3 million compared to $3.4 million for the same period in 2011.
- Total substandard loans have decreased by $21.9 million in the first six months of 2012.
- Return on average assets was 1.31% for the second quarter of 2012 and 1.27% for the first six months of 2012.
- Return on average common equity was 16.43% for the second quarter of 2012 and 16.13% for the first six months of 2012.
- The merger with Heartland Bancshares, Inc ("Heartland") based in Franklin, Indiana closed on July 17, 2012.
- Horizon's tangible book value per share rose to $22.22 compared to $21.35 and $19.17 at March 31, 2012 and June 30, 2011, respectively.
- Horizon Bank's capital ratios, including Tier 1 Capital to total risk weighted assets of 12.03% as of June 30, 2012, continue to be well above the regulatory standards for well-capitalized banks.
Craig M. Dwight, President and CEO, stated: "Our business model continued to deliver a balanced revenue stream, with solid year-over-year growth in key areas. Ongoing reductions in the provision for loan losses, increased revenue from our mortgage operations, and our continued focus on expense management, contributed to the Bank's record earnings for these periods."
"Loan and deposit growth, particularly at Horizon's newer branch locations, demonstrated exceptional productivity and success in earning market share in highly competitive market conditions. At quarter's end, Horizon exceeded $1 billion in loans, including loans held for sale, for the first time in its history."
"Despite continuing pressure on margins, we increased our net interest margin over the prior year, an accomplishment supported in part by our mortgage warehousing business. We were also pleased to have closed the acquisition of Heartland Bancshares on schedule, in what was a very smooth and cooperative process. We look forward to maximizing the value of the new markets and customers in the Indianapolis area. We have complemented our expanded presence by opening a loan and deposit production office in Indianapolis in July."
Net income for the second quarter of 2012 was $4.9 million or $.93 diluted earnings per share, up 59% compared to $3.1 million or $.56 diluted earnings per share in the second quarter of 2011. This represents the highest level of net income for a single quarter in the Company's 139-year history.
Net income for the first six months of 2012 rose 63% to $9.5 million or $1.81 diluted earnings per share, compared with $5.9 million or $1.05 diluted earnings per share in the first half of 2011. This is the highest first six months of net income in the Company's history.
The net interest margin was 3.79% in the second quarter of 2012 up from 3.67% for the three-month period ending June 30, 2011 but down 8 basis points (or 0.08%) from the three months ending March 31, 2012. This decrease from the first quarter of 2012 primarily reflected a decrease in the yield on interest-earning assets greater than the decrease in the rates paid on interest-bearing liabilities. The net interest margin was 3.84% for the six months ending June 30, 2012 up from 3.62% for the same period in 2011.
During the second quarter of 2012 residential mortgage loan activity generated $3.4 million in income from the gain on sale of mortgage loans; an increase of $2.1 million from the same period in 2011 and an increase of $1.1 million from the first quarter of 2012.
Total loans increased by $13.9 million from $983.2 million at December 31, 2011 to $997.1 million at June 30, 2012. Commercial loans increased by $4.2 million, mortgage warehouse loans increased by $7.2 million, consumer loans increased by $3.1 million and residential mortgage loans decreased by $467,000 compared to December 31, 2011 loan levels.
The provision for loan losses was $209,000 for the second quarter of 2012, which was $1.1 million less than the provision for the same period of the prior year. For the first six months of 2012 the provision for loan losses was $2.1 million less than the provision for the same period of the prior year. The lower provision for loan losses was primarily related to a decrease in charged off loans and improvement in substandard loans. Substandard loans have decreased $21.9 million since December 31, 2011.
"We anticipate that with the integration of Heartland, the level of substandard loans will increase," explained Dwight. "Horizon's approach to substandard loans is to work with the borrowers to achieve a reasonable action plan, if the plan cannot be achieved then Horizon moves to protect the shareholders' and depositors' interests to minimize loss. Horizon believes that with a disciplined approach to problem loan resolution we will also be able to reduce the substandard loans being acquired from Heartland."
The ratio of allowance for loan losses to total loans decreased to 1.83% as of June 30, 2012 from 1.89% as of December 31, 2011. The decrease in the ratio was primarily the result of charging off specific reserves previously identified and the reduction in substandard loans.
Non-performing loans totaled $20.8 million on June 30, 2012, down from $21.1 million on March 31, 2012, but up slightly from $20.6 million on June 30, 2011. As a percentage of total loans, non-performing loans were 2.09% on June 30, 2012, similar to 2.10% on March 31, 2012, but down from 2.44% on June 30, 2011. The drop in the percentage of non-performing loans to total loans is the direct result of the loan growth that occurred over the last twelve months.
Other Real Estate Owned (OREO) totaled $1.0 million on June 30, 2012, up from $803,000 on March 31, 2012, but down significantly from $4.1 million on June 30, 2011. During the quarter, eight properties with a book value of $435,000 as of March 31, 2011 were sold and seven properties with a book value of $696,000 were transferred into OREO. There was one write down of $29,000 during the quarter. On June 30, 2012, OREO was comprised of 10 properties. Of these, five totaling $599,000 were commercial loans and five totaling $427,000 were residential real estate loans. Horizon currently has contracts to sell two properties with a book value of $197,000.
Total non-interest expenses were $2.6 million higher in the first six months of 2012 compared to the first six months of 2011 and $1.0 million higher compared to the three months ending March 31, 2012. Salaries and employee benefits at June 30, 2012 increased $1.7 million compared to the same period in 2011 and was $576,000 higher compared to the three months ending March 31, 2012. These increases are primarily the result of annual merit pay increases, increase in employee benefits costs and commission and bonus expense for the first six months of 2012. Also, included in the first six months of 2012's non-interest expense was $500,000 of transaction expenses related to the transaction with Heartland.
Dwight concluded: "We plan to continue to focus on building productivity in every location and department. We expect our expanded presence in Indiana will offer greater visibility for the Horizon franchise, and continued economies of scale."
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 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