Horizon Bancorp Announces Record Earnings for 2012

Horizon Bancorp Announces Record Earnings for 2012

MICHIGAN CITY, Ind.--(BUSINESS WIRE)-- (NAS: HBNC) - Horizon Bancorp today announced its unaudited financial results for the three and twelve month periods ended December 31, 2012. All share data has been adjusted to reflect the three-for-two stock split paid on November 9, 2012.

SUMMARY:

  • Horizon's net income of $19.5 million for the twelve months ending 2012 surpasses the $12.8 million earned in the prior year and represents the highest annual net income in the Company's history.

  • Fourth quarter 2012 net income was $5.2 million or $.56 diluted earnings per share, a 22% increase in diluted earnings per share compared to 2011. In addition, this represents the highest quarterly net income in the Company's history.

  • Horizon's net income for 2012 was $19.5 million or $2.30 diluted earnings per share, a 52% increase in diluted earnings per share compared to the same period in 2011.

  • On July 17, 2012 Horizon completed its acquisition of Heartland Bancshares, Inc. ("Heartland"). On that date, Horizon recorded $229.5 million in assets and $218.7 million in liabilities.

  • As a result of the acquisition and organic growth, total assets increased to a record $1.8 billion at December 31, 2012, compared with $1.5 billion at December 31, 2011.

  • Total loans increased $207.5 million during 2012, consisting of $92.9 million in organic loan growth and $114.6 million net loans acquired from Heartland.

  • Total deposits increased $283.7 million during 2012, consisting of $72.5 million in organic deposit growth and $211.2 million in deposits acquired from Heartland.

  • Net interest income, after provisions for loan losses, for 2012 was $54.7 million compared with $42.8 million for 2011.

  • The provision for loan losses decreased to $3.5 million for the year ended December 31, 2012 compared to $5.3 million for 2011.

  • Net charge-offs in 2012 were $4.1 million compared to $5.5 million in 2011.

  • Substandard and 30 to 89 day delinquent loans in total decreased by $1.9 million during 2012 from $60.8 million at December 31, 2011 to $58.9 million at December 31, 2012 including $21.5 million at December 31, 2012 acquired from the Heartland merger.

  • Return on average assets was 1.13% in the fourth quarter of 2012 and 1.19% the year ended December 31, 2012.

  • Return on average common equity was 13.70% in fourth quarter 2012 and 14.72% for the year ended December 31, 2012.

  • Horizon Bank's capital ratios continue to be well above the regulatory standards for well-capitalized banks.


Performance Highlights

Net income for the fourth quarter of 2012 was $5.2 million or $.56 diluted earnings per share, which reflects a 22% increase in diluted earnings per share over the $3.5 million or $.46 diluted earnings per share in the fourth quarter of 2011. Net income for 2012 rose to $19.5 million or $2.30 diluted earnings per share, which reflects a 52% increase in diluted earnings per share over the net income of $12.8 million or $1.51 diluted earnings per share for 2011.

Craig M. Dwight, President and CEO, stated: "It was gratifying that in a year in which we made a substantial acquisition, the entire Horizon team maintained a strong focus on growing the bank's established business that consequently contributed to increased shareholder value. Our success in serving customers, expanding customer relationships and winning new customers led to organic year-over-year growth. In addition to the growth provided by Heartland, we continued to expand Horizon's size, scope, and access to new market opportunities in our other markets."

"We believe Horizon's continued success reflects our business expansion strategy and focus on a balanced mix of five revenue streams - business banking, retail banking, residential mortgage lending, mortgage warehouse lending and investment management. Being somewhat counter-cyclical sectors in nature, these are designed to deliver consistent and stable performance over time."

"In 2012, despite a sluggish economy and suppressed interest rates, all five business sectors delivered growth and strong performance. Commercial lending, which was a key focus in 2012, grew significantly, particularly in the Indianapolis, Indiana and Kalamazoo, Michigan markets. The midyear addition of Heartland's Indianapolis area locations and the 2012 opening of a new commercial banking office in Indianapolis offer the potential to further expand commercial lending."

Dwight continued, "Horizon had strong production in residential mortgage lending, and related increases from the gain on sale primarily of long-term, low fixed-rate loans which we did not retain in order to manage interest rate risk. Also due to the active mortgage and refinancing market, our mortgage warehousing business, which generates low-cost capital for the Company, grew considerably in 2012."

"We also continued our diligence in managing expenses. Productivity enhancements in past years have contributed to Horizon's efficiency in recent years and continue to support efficient growth. We anticipate continuing productivity improvements related to the acquired Heartland business. The ongoing low interest rate environment will continue to present challenges, however, we were satisfied with our ability to maintain net interest margin in 2012."

The net interest margin was 4.16% in the fourth quarter of 2012, up from 3.95% for the three-month period ending December 31, 2011. The net interest margin was 3.89% for the year ended December 31, 2012, up from 3.74% for 2011. The increase in the margin in 2012 compared to 2011 was due to the recognition of approximately $1.5 million of interest income during the fourth quarter from the Heartland loan discounts along with the reduction in the rate paid on interest bearing liabilities. Excluding the interest income recognized from the loan discounts, the margin would have been 3.81% and 3.79% for the three and twelve month periods ending December 31, 2012, respectively.

During the fourth quarter of 2012, residential mortgage loan activity generated $4.0 million in income from the gain on sale of mortgage loans, an increase of $1.5 million from the same period in 2011.

Lending Activity

Total loans increased by $207.5 million from $983.2 million at December 31, 2011 to $1.2 billion at December 31, 2012. For 2012, commercial loans increased by $108.1 million, mortgage warehouse loans increased by $43.1 million, consumer loans increased by $23.7 million and residential mortgage loans increased by $32.6 million compared to December 31, 2011 loan levels. The acquisition of Heartland increased total loans by $114.6 million, and Horizon generated an additional $92.9 million in net organic loan growth during 2012.

"In a very competitive environment for quality lending prospects, it was encouraging to demonstrate meaningful organic loan growth," explained Dwight. "In addition, we made considerable progress in improving overall credit quality in 2012, measured by net charge-offs, which declined 25% in 2012 compared to the prior year, also lower loan delinquency, and effectively disposing of repossessed collateral and other real estate owned."

"Although loans past due 30 to 89 days and non-performing loans increased primarily as a result of the acquisition, this was expected and we are working diligently with borrowers to resolve issues and return loans to current status. We have deployed a seasoned expert in handling troubled loans to address these challenged credits. Horizon is also seeing progress from its loan collection efforts."

The provision for loan losses was $1.7 million for the fourth quarter of 2012, which was $877,000 more than the provision for the same period of the prior year. For the year ended 2012, the provision for loan losses was $3.5 million, which was $1.8 million less than the provision for the prior year. The higher provision for loan losses during the fourth quarter was related to organic growth in the Company's loan portfolio and $431,000 of charge-offs related to the credit losses resulting from the Heartland loans acquired that exceeded the loan discounts recorded at the time of the acquisition. As a percentage of total loans, non-performing loans were 1.97% on December 31, 2012, down from 2.08% on September 30, 2012, and 2.02% on December 31, 2011.

The ratio of allowance for loan losses to total loans decreased to 1.52% as of December 31, 2012 from 1.89% as of December 31, 2011. The decrease in the ratio was primarily due to the increase in total loans resulting from the Heartland acquisition in which loans were recorded at fair value with no allowance allocated to them at December 31, 2012.

Non-performing loans totaled $23.8 million on December 31, 2012, down from $24.4 million on September 30, 2012, and up from $20.1 million on December 31, 2011. The increase from December 31, 2011 was due to the Heartland acquisition. Excluding Heartland, non-performing loans would have declined to $16.5 million at December 31, 2012 from $19.1 million at September 30, 2012.

At December 31, 2012, loans acquired in the Heartland acquisition represented $7.3 million in non-performing, $18.1 million in substandard and $3.4 million in delinquent loans, which compares to $5.3 million in non-performing, $20.0 million in substandard and $4.6 million in delinquent loans at September 30, 2012.

Other Real Estate Owned (OREO) totaled $2.6 million on December 31, 2012, representing no change from September 30, 2012, but down from $2.8 million on December 31, 2011. During the fourth quarter, eight properties with a book value of $866,000 as of September 30, 2012 were sold, and seven properties with a book value of $975,000 as of December 31, 2012 were transferred into OREO. Another four properties were written down by $109,000. On December 31, 2012, OREO was comprised of 20 properties. Of these properties, five totaling $1.3 million were commercial real estate and 15 totaling $1.3 million were residential real estate.

Expense Management

Total non-interest expense was $7.9 million higher for the year ending December 31, 2012 compared to 2011 and $2.8 million higher for the three months ending December 31, 2012 compared to the three months ending December 31, 2011. Salaries and employee benefits increased $5.5 million for the year ending December 31, 2012 compared to 2011 and were $2.0 million higher for the three months ending December 31, 2012 compared to 2011. These increases were primarily the result of changes to annual merit pay, employee benefits costs, commissions earned and bonus accruals. In addition, compensation expense was higher due to the Heartland merger and directly related to Horizon's investment in growth markets. Included in 2012's non-interest expense was approximately $1.5 million of transaction expenses related to the Heartland acquisition.

Outlook

Dwight concluded: "In an eventful year with numerous potential distractions, Horizon grew its existing banking business while integrating acquired assets and positioning the Company to pursue additional expansion opportunities. In addition to the acquisition, Horizon opened two new full service branches: one in Valparaiso, Indiana, which was our third branch in this market, and relocated a loan and deposit office in Kalamazoo, Michigan. We also opened the loan and deposit office in Indianapolis, Indiana, which grew total assets to $35 million in approximately six months of operations."

"We very are diligent in analyzing opportunities before opening offices or branches. We anticipate leasing an empty bank building in downtown Kalamazoo and opening a new office in the coming months to serve this strong-performing market. We have also started construction on a branch in the Indianapolis suburb of Greenwood, Indiana. When completed, we plan to relocate a current branch to this location, which we believe is far superior."

"Horizon continues to consider opportunities to expand in our existing and new markets and to further leverage our capabilities and business model. We remain focused on growing shareholder value, including returning a portion of earnings as cash dividends. We were gratified that during a time of great uncertainty, speculation and volatility in the stock market, investors recognized and rewarded our performance with a significantly higher stock price. We are making strategic investments in people and capabilities which, we believe, will allow us to be more productive and generate business, creating a balanced approach to building the Horizon franchise."

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, which also operates under the "Heartland Community Bank a Horizon Bank Company" name in certain markets. 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.

HORIZON BANCORP

Financial Highlights

(Dollars in thousands except share and per share data and ratios, Unaudited)

December 31

September 30

June 30

March 31

December 31

2012

2012

2012

2012

2011

Balance sheet:

Total assets

$

1,847,677

$

1,846,776

$

1,563,265

$

1,546,831

$

1,547,162

Investment securities

482,801

503,804

441,715

440,601

438,145

Commercial loans

460,471

447,414

356,549

350,463

352,376

Mortgage warehouse loans

251,448

244,233

215,478

213,152

208,299

Residential mortgage loans

189,714

176,553

156,675

155,550

157,141

Consumer loans

289,084

286,848

268,437

269,388

265,377

Earning assets

1,700,595

1,690,348

1,460,544

1,451,746

1,447,818

Non-interest bearing deposit accounts

208,650

211,935

136,979

138,618

130,673

Interest bearing transaction accounts

769,822

767,202

634,907

641,128

538,083

Time deposits

315,131

327,834

273,903

284,875

341,109

Borrowings

345,764

333,150

339,880

310,889

370,111

Subordinated debentures

32,331

32,282

30,722

30,699

30,676

Common stockholders' equity

146,468

143,362

118,112

113,738

108,965

Total stockholders' equity

158,968

155,862

130,612

126,238

121,465

Income statement:

Three months ended

Net interest income

$

17,003

$

14,999

$

13,006

$

13,198

$

13,592

Provision for loan losses

1,715

1,041

209

559

838

Other income

7,924

7,710

6,555

5,142

4,999

Other expenses

15,844

14,840

12,180

11,160

13,089

Income tax expense

2,198

1,978

2,262

2,008

1,142

Net income

5,170

4,850

4,910

4,613

3,522

Preferred stock dividend

(156

)

(63

)

(106

)

(156

)

(63

)

Net income available to common shareholders

$

5,014

$

4,787

$

4,804

$

4,457

$

3,459

Per share data:

Basic earnings per share

$

0.58

$

0.56

$

0.65

$

0.60

$

0.47

Diluted earnings per share

0.56

0.54

0.62

0.59

0.46

Cash dividends declared per common share

0.10

0.10

0.09

0.09

0.08

Book value per common share

17.00

16.64

15.88

15.33

14.68

Tangible book value per common share

14.23

13.85

14.81

14.24

13.58

Market value - high

19.68

19.08

17.73

12.33

11.97

Market value - low

$

16.54

$

17.67

$

11.76

$

11.53

$

10.82

Weighted average shares outstanding - Basic

8,617,466

8,503,475

7,434,537

7,422,860

7,421,544

Weighted average shares outstanding - Diluted

8,964,315

8,838,659

7,728,519

7,598,490

7,576,052

Key ratios:

Return on average assets

1.13

%

1.09

%

1.31

%

1.23

%

0.93

%

Return on average common stockholders' equity

13.70

13.96

16.43

15.90

12.74

Net interest margin

4.16

3.79

3.79

3.87

3.95

Loan loss reserve to total loans

1.52

1.58

1.83

1.94

1.89

Non-performing loans to loans

1.97

2.08

2.07

2.11

2.02

Average equity to average assets

8.71

8.45

8.61

8.33

7.96

Bank only capital ratios:

Tier 1 capital to average assets

7.87

8.58

8.74

8.53

8.50

Tier 1 capital to risk weighted assets

10.91

11.25

12.01

11.82

11.86

Total capital to risk weighted assets

12.16

12.50

13.27

13.08

13.12

Loan data:

Substandard loans

$

52,114

$

57,079

$

35,634

$

46,643

$

57,489

30 to 89 days delinquent

6,759

8,351

3,773

2,932

3,282

90 days and greater delinquent - accruing interest

$

51

$

109

$

13

$

28

$

37

Trouble debt restructures - accruing interest

3,702

3,356

3,092

3,188

3,540

Trouble debt restructures - non-accrual

6,649

5,062

2,786

2,439

2,198

Non-accrual loans

13,374

15,887

14,925