News Details

MICHIGAN CITY, Ind.--(BUSINESS WIRE)-- (NASDAQ: HBNC) – Horizon Bancorp today announced its unaudited financial results for the three and nine-month periods ended September 30, 2015.

SUMMARY:

• On July 1, 2015, Horizon closed the acquisition of Peoples Bancorp (“Peoples”) and its wholly-owned subsidiary, Peoples Federal Savings Bank of DeKalb County, headquartered in Auburn, Indiana.
• The quarterly dividend was increased from $.14 to $.15 per share on September 15, 2015.
• Third quarter 2015 net income was $4.3 million or $.36 diluted earnings per share.
• Excluding merger expenses and gain on sale of investment securities, net income for the third quarter of 2015 increased 52.8% compared to the same period of 2014 to $6.7 million or $.56 diluted earnings per share.
• Net income for the first nine months of 2015 was $14.4 million or $1.37 diluted earnings per share.
• Excluding merger expenses, gain on sale of investment securities and the death benefit on bank owned life insurance, net income for the first nine months of 2015 increased 28.3% compared to the same period of 2014 to $17.2 million or $1.64 diluted earnings per share.
• Net interest income for the first nine months of 2015 increased 17.3% or $8.1 million compared to the same period in 2014.
• The net interest margin, excluding the impact of acquisitions (“core net interest margin”), decreased 7 basis points from the linked quarter and 3 basis points in the first nine months of 2015 compared to the same periods in 2014.
• Non-interest income for the first nine months of 2015 increased 15.9% or $3.1 million compared to the same period in 2014.
• Excluding the Peoples acquisition, mortgage warehouse loans and loans held for sale, loans increased 11.9% on an annualized basis during the third quarter of 2015.
• Horizon’s tangible book value per share increased to $16.37 at September 30, 2015, compared to $16.26 at December 31, 2014 and $15.75 at September 30, 2014.
• Horizon Bank’s capital ratios, including Tier 1 Capital to Average Assets of 9.35% and Total Capital to Risk Weighted Assets of 13.03% as of September 30, 2015, continue to be well above the regulatory standards for well-capitalized banks.

Craig Dwight, Chairman and CEO, commented: “Horizon continued its growth story in the third quarter of 2015 with positive contributions from all four revenue streams - retail banking, business banking, mortgage banking and wealth management. These results are particularly noteworthy as the Peoples integration and systems conversion required a tremendous amount of teamwork and dedication during the quarter.”

Dwight continued, “Horizon’s growth drove a substantial increase in net income and earnings per share compared to the same periods of 2014. Net income and diluted earnings per share, excluding non-core items, increased 57.0% and 26.7% during the third quarter of 2015, respectively. On a year-to-date basis, net income and diluted earnings per share, excluding non-core items, increased by 30.0% and 17.8%, respectively. Given the persistent low interest rate environment, loan and fee income growth and the ability to create operating leverage are critical to combat margin pressure existing throughout the banking industry.”

Dwight commented, “Due to a decline in mortgage refinancing activity, Horizon’s mortgage warehouse portfolio returned to more normalized levels during the third quarter of 2015. This decrease was partially offset by continued organic growth in other loan types and the addition of loans acquired in the Peoples transaction. Excluding loans acquired in the Peoples acquisition, mortgage warehouse loans and loans held for sale, loans increased by 11.9% on an annualized basis in the third quarter of 2015 and 12.2% on an annualized basis during the first nine months of 2015 compared to the same periods of 2014.”

Dwight continued, “Horizon’s strategy of revenue diversification through commercial loan growth and non-mortgage related fee income is evident in our results. At its peak, for the year ended December 31, 2012 mortgage warehouse and mortgage gain on sale revenue comprised 24.5% of Horizon’s total revenue base (interest income and non-interest income). For the year ending December 31, 2014 and the nine months ending September 30, 2015, mortgage warehouse and mortgage gain on sale revenue as a percentage of total revenue declined to 12.8% and 14.7%, respectively.”

The following table presents Horizon’s core net interest margin, which excludes acquisition-related purchase accounting adjustments. Dwight noted, “The Peoples transaction created a slight reduction in Horizon’s net interest margin. The reduction was partially alleviated due to the mix of earning assets as the cash from Peoples’ liquidated securities portfolio was used to redeem short-term borrowings at the close of the transaction reducing interest-earning assets throughout the third quarter. During the quarter, a portion of the cash from the liquidated securities portfolio was used to repurchase securities and pay down a matured long-term FHLB advance.”

To reduce funding costs over the next four years the Company currently plans to use the securities portfolio to redeem maturing long-term debt. As of September 30, 2015, $31.6 million of long-term debt is scheduled to mature in 2016, $47.5 million in 2017, $27.0 million in 2018 and $55.2 million in 2019. This deleveraging will help reduce the Company’s cost of funds and provide additional capital for growth.

Horizon’s loan loss reserve ratio, excluding loans with credit-related purchase accounting adjustments, was 1.13% as of September 30, 2015.

Income Statement Highlights

Net income for the third quarter of 2015 was $4.3 million or $.36 diluted earnings per share compared to $4.9 million or $.51 diluted earnings per share in the third quarter of 2014. The decrease in net income and earnings per share from the previous year reflects an increase in non-interest expenses of $6.9 million primarily due to an increase in salaries and employee benefits and outside services and consultants expense, partially offset by an increase in net interest income of $3.4 million, a decrease in provision for loan losses of $1.4 million and an increase in non-interest income of $1.0 million. The decrease in earnings per share also reflects an increase in diluted shares due to the Peoples acquisition. Excluding acquisition-related expenses and purchase accounting adjustments and gain on sale of investment securities, net income for the third quarter of 2015 was $6.5 million or $.54 diluted earnings per share compared to $4.1 million or $.42 diluted earnings per share in the same period of 2014.

Net income for the nine months ended September 30, 2015 was $14.4 million or $1.37 diluted earnings per share compared to $13.2 million or $1.39 diluted earnings per share for the nine months ended September 30, 2014. The increase in net income from the previous year reflects an increase in net interest income of $8.1 million and an increase in non-interest income of $3.1 million, partially offset by an increase in the provision for loan losses of $740,000 and an increase in non-interest expenses of $8.7 million. The decrease in earnings per share also reflects an increase in diluted shares due to the Peoples acquisition. Excluding acquisition-related expenses and purchase accounting adjustments, gain on sale of investment securities and the death benefit on bank owned life insurance, net income for the first nine months of 2015 was $15.7 million or $1.50 diluted earnings per share compared to $12.1 million or $1.27 diluted earnings per share in the same period of 2014.

Horizon’s net interest margin was 3.51% during the third quarter of 2015, down from 3.67% for the prior quarter and 3.59% for same period of 2014. The decrease in net interest margin compared to the prior quarter and the same period of 2014 was due to lower yields on new loans and re-pricing earning assets and a decrease in interest income from acquisition-related purchase accounting adjustments. Excluding acquisition-related purchase accounting adjustments, the margin would have been 3.44% for the third quarter of 2015 compared to 3.51% for the prior quarter and 3.50% for the same period of 2014. Interest income from acquisition-related purchase accounting adjustments was $402,000, $797,000, and $438,000 for the three months ended September 30, 2015, June 30, 2015 and September 30, 2014, respectively.

Horizon’s net interest margin was 3.59% for the nine months ending September 30, 2015, down from 3.62% for same period of 2014. Excluding interest income from acquisition-related purchase accounting adjustments, the margin would have been 3.44% for the nine months ending September 30, 2015 compared to 3.47% for same period of 2014. Interest income from acquisition-related purchase accounting adjustments was $2.3 million and $2.0 million for the nine months ended September 30, 2015 and September 30, 2014, respectively.

Residential mortgage lending activity during the third quarter of 2015 generated $2.8 million in income from the gain on sale of mortgage loans, an increase of $641,000 from the same period of 2014. Total origination volume in the third quarter of 2015, including loans placed into portfolio, totaled $127.5 million, representing an increase of 24.8% from the same period of 2014 of $102.2 million. Purchase money mortgage originations during the third quarter of 2015 represented 81.0% of total originations compared to 71.8% of originations during the previous quarter and 77.6% during the third quarter of 2014.

Lending Activity

Total loans increased $346.9 million from $1.4 billion as of December 31, 2014 to $1.7 billion as of September 30, 2015 as mortgage warehouse loans increased by $9.8 million, residential mortgage loans increased by $175.9 million and consumer loans increased by $40.8 million. Commercial loans increased $121.0 million or 10.5% on an annualized basis from $674.3 million at December 31, 2014 to $795.3 million at September 30, 2015.

Total loan balances in the Kalamazoo and Indianapolis markets continued to grow during the third quarter of 2015 to $166.8 million and $151.2 million, respectively, as of September 30, 2015. In the third quarter of 2015, Kalamazoo’s aggregate loan balances increased $12.4 million or 8.0%, and Indianapolis’ aggregate loan balances increased $5.7 million or 3.9%. Combined, these markets contributed $18.1 million in loan growth during the third quarter of 2015 or 6.0%.

The provision for loan losses was $300,000 for the third quarter of 2015 compared to $1.7 million for the same period of 2014. The lower provision for loan losses in the third quarter of 2015 compared to the same period of the previous year was predominantly due a $1.0 million charge-off associated with one commercial credit during the third quarter of 2014. The provision for loan losses was $2.8 million the first nine months of 2015 compared to $2.1 million for the same period of 2014. The higher provision for loan losses in the first nine months of 2015 compared to the same period of 2014 was due to the charge-off of one commercial credit of $1.3 million in the second quarter of 2015 as well as continued loan growth. The $1.3 million commercial charge-off was a legacy workout loan that was determined to be impaired due to the borrower’s inability to make payments and a decrease in collateral value.

The ratio of the allowance for loan losses to total loans decreased to 0.93% as of September 30, 2015 from 1.19% as of December 31, 2014 due to an increase in total loans and a decrease in the allowance for loan losses from $16.5 million as of December 31, 2014 to $16.2 million as of September 30, 2015. The Peoples transaction added $223.9 million in loans without a loan loss reserve due to purchase accounting adjustments. As of September 30, 2015, the ratio of the allowance for loan losses to total loans, excluding loans with credit-related purchase accounting adjustments, was 1.13% compared to 1.29% as of December 31, 2015.

Non-performing loans totaled $21.0 million as of September 30, 2015 and $22.4 million as of December 31, 2014. Compared to December 31, 2014, non-performing commercial loans and consumer loans decreased by $707,000 and $927,000, respectively, while non-performing real estate loans increased by $253,000. As a percentage of total loans, non-performing loans were 1.21% at September 30, 2015, down 41 basis points from 1.62% at December 31, 2014.

Expense Management

Total non-interest expense was $6.9 million higher in the third quarter of 2015 compared to the same period of 2014. The increase was primarily due to an increase in salaries and employee benefits costs of $2.4 million, outside services and consultants expense of $2.6 million and other expense of $547,000, reflecting overall company growth and the Peoples acquisition. One-time non-interest expense related to the Peoples acquisition totaled $3.6 million in the third quarter of 2015.

Total non-interest expense was $8.7 million higher in the first nine months of 2015 compared to the same period of 2014. The increase was primarily due to an increase in salaries and employee benefits costs of $3.6 million, outside services and consultants expense of $2.2 million, other expenses of $817,000, net occupancy expenses of $461,000, data processing expense of $456,000, professional fees of $211,000, loan expense of $486,000, FDIC deposit insurance expense of $245,000 and other losses of $253,000 due to overall company growth and the Peoples acquisition. One-time non-interest expense related to the Peoples acquisition totaled $4.4 million in the third quarter of 2015.

Use of Non-GAAP Financial Measures

Certain information set forth in this press release refers to financial measures determined by methods other than in accordance with GAAP. Specifically, we have included non-GAAP financial measures of the net interest margin and the allowance for loan and lease losses excluding the impact of acquisition-related purchase accounting adjustments and net income and diluted earnings per share excluding the impact of one-time costs related to acquisitions, acquisition-related purchase accounting adjustments and other events that are considered to be non-recurring. Horizon believes that these non-GAAP financial measures are helpful to investors and provide a greater understanding of our business without giving effect to the purchase accounting impacts and one-time costs of acquisitions and non-core items, although these measures are not necessarily comparable to similar measures that may be presented by other companies and should not be considered in isolation or as a substitute for the related GAAP measure.

About Horizon

Horizon Bancorp is a locally owned, independent, commercial bank holding company serving Northern and Central Indiana and Southwest and CentralMichigan 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.horizonbank.com. Its common stock is traded on the NASDAQ Global Select Market under the symbol HBNC.

Forward Looking Statements

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 its Form 10-K. 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.

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Horizon Bancorp
Mark E. Secor
Chief Financial Officer
(219) 873-2611
Fax: (219) 874-9280

Source: Horizon Bancorp