Horizon Bancorp Announces Record Quarterly Earnings
First quarter 2013 net income was $5.3 million or $.58 diluted earnings per share, the highest quarterly net income in the Company's history.
Net interest income, before provisions for loan losses, for the first three months of 2013 was $16.0 million compared with $13.2 million for the same period in the prior year.
Non-interest income rose to $7.5 million in first quarter 2013 compared with $5.1 million in first quarter 2012, primarily reflecting a significant increase in gain on sale of loans, and increased fee income from fiduciary activities.
Return on average assets was 1.23% for the first quarter of 2013.
Return on average common equity was 14.11% for the first quarter of 2013.
Total loans decreased $100.9 million during the quarter to $1.1 billion at March 31, 2013 as mortgage warehouse loans decreased $107.8 million during the same period.
Total deposits increased $20.9 million during the quarter to $1.3 billion at March 31, 2013.
Total borrowings decreased $136.9 million during the quarter to $208.9 million as the short-term funding needed for mortgage warehouse loans declined and deposits increased.
Horizon's tangible book value per share rose to $14.64 at March 31, 2013, compared to $14.24 at March 31, 2012.
Horizon Bank's capital ratios, including Tier 1 Capital to Average Assets of 8.82% and Total Capital to Risk Weighted Assets of 13.58% as of March 31, 2013, continue to be well above the regulatory standards for well-capitalized banks.
Craig M. Dwight, President and CEO, commented: "Record first quarter earnings demonstrated the contribution of new assets acquired in our acquisition of Heartland Bancshares, Inc. ("Heartland") in mid-2012 and full realization of the transaction's synergies. In addition, we have been particularly pleased with growth in our commercial lending relationship business which has generated $25.7 million in organic loan growth in the past six months, led by our Kalamazoo, Michigan and Indianapolis, Indiana locations. As our commercial loans continue to grow our commercial team is generating new deposits and fee income from business banking services by expanding relationships."
Dwight noted the Bank continues to build core deposits to help maintain a low cost of funding. Non-interest bearing deposits increased to $217.2 million at March 31, 2013 compared with $138.6 million in first quarter 2012, reflecting growth in the number of banking relationships with small businesses and the acquisition of Heartland. Interest bearing transaction accounts rose to $778.0 million in the first quarter 2013 compared with $769.8 million at December 31, 2012 and $641.1 million at March 31, 2012.
Income Statement Highlights
Net income for the first quarter of 2013 was $5.3 million or $.58 diluted earnings per share compared to $4.6 million or $.59 diluted earnings per share in the first quarter of 2012. The net income for the first quarter of 2013 is the highest net income in the Company's history. Diluted earnings per share decreased by $.01 due to the additional shares issued in the Heartland acquisition and lower mortgage warehouse lending activity as compared with the same time period for the prior year. Growth in commercial loans and realizing the synergies from the Heartland transaction contributed to the record earnings in the first quarter of 2013 as mortgage warehousing balances decreased.
The Company's net interest margin was 4.10% during the first quarter of 2013, up from 3.87% for the three-month period ending March 31, 2012 but down 6 basis points from the three months ending December 31, 2012. The increase in the margin in the first quarter of 2013 compared to the same period in 2012 was due to the recognition of approximately $2.0 million of interest income from Heartland loan discounts being accreted and 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 3.60% for the three month period ending March 31, 2013.
Residential mortgage lending activity during the first quarter of 2013 generated $3.1 million in income from the gain on sale of mortgage loans, representing an increase of $832,000 from the same period in 2012 and a decrease of $896,000 from the fourth quarter of 2012.
"The quality of the loans we are originating has consistently facilitated the sale of longer-term, lower interest fixed rate mortgages to the secondary market," noted Dwight. "This has driven valuable non-interest income and enabled us to manage the risk profile of our loan portfolio."
Total loans decreased by $100.9 million from $1.2 billion at December 31, 2012 to $1.1 billion at March 31, 2013. Mortgage warehouse loans decreased by $107.8 million and consumer loans decreased by $7.4 million. Commercial loans increased by $12.6 million and residential mortgage loans increased by $1.6 million. Dwight noted the slow-down in the Company's mortgage warehousing business reflects interest rate movements, seasonality and the decline in the demand for mortgage refinance business.
The provision for loan losses was $2.1 million for the first quarter of 2013, which was approximately $1.5 million more than the provision for the same period of the prior year and $369,000 more than the previous quarter. The higher provision for loan losses during the first quarter was related to organic growth in the Company's loan portfolio and $1.4 million of additional loan loss provision expense related to credit losses from certain Heartland loans that exceeded the loan discounts recorded at the time of the acquisition. As a percentage of total loans, non-performing loans were 2.16% on March 31, 2013, up from 1.97% on December 31, 2012, and 2.11% on March 31, 2012. The increase at March 31, 2013 is attributable to the decrease in total loans.
The ratio of allowance for loan losses to total loans decreased to 1.78% as of March 31, 2013 from 1.94% as of March 31, 2012. 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 March 31, 2013.
Non-performing loans totaled $23.7 million on March 31, 2013, down slightly from $23.8 million on December 31, 2012, and up from $21.1 million on March 31, 2012. The increase from March 31, 2012 was due to the Heartland acquisition. Excluding Heartland loans, non-performing loans increased to $17.3 million at March 31, 2013 from $16.5 million at December 31, 2012.
At March 31, 2013, loans acquired in the Heartland acquisition represented $6.4 million in non-performing, $17.7 million in substandard and $793,000 in delinquent loans, which compares to $7.3 million in non-performing, $18.1 million in substandard and $3.4 million in delinquent loans at December 31, 2012.
Total non-interest expense was $2.8 million higher in the first quarter of 2013 compared to the first quarter of 2012 and $1.8 million lower compared to the three months ending December 31, 2012. Salaries and employee benefits increased $1.5 million compared to the same quarter in 2012 and decreased approximately $472,000 compared to the three months ending December 31, 2012. The increase over the previous year was 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 acquisition and directly related to Horizon's investment in growth markets. The decrease compared to the fourth quarter of 2012 was primarily the result of lower commissions paid and bonuses accrued.
Dwight concluded: "At the heart of the Company's success are Horizon's dedicated, experienced banking teams, whom constantly strive to provide exceptional service and sensible advice to our customers. Although economic conditions, a low interest rate environment and intense competition for quality loans represent challenges, our employees have risen to the occasion."
"The Company's expanded footprint has increased the number of opportunities our team has to win new business and grow customer relationships. We will stay focused on increasing productivity and managing expenses to drive the maximum amount of revenue to the Company's bottom line, consistent with our goal of growing shareholder value."
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.
(Dollars in thousands except share and per share data and ratios, Unaudited)
Mortgage warehouse loans
Residential mortgage loans
Non-interest bearing deposit accounts
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Market value - high
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30 to 89 days delinquent
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