News Details

MICHIGAN CITY, Ind.--(BUSINESS WIRE)-- (NASDAQ: HBNC) – Horizon Bancorp today announced its unaudited financial results for the three and twelve-month periods ended December 31, 2016. All share data has been adjusted to reflect Horizon’s three-for-two stock split announced on October 19, 2016 and issued on November 14, 2016.

SUMMARY:

• Net income for the year ended December 31, 2016 was $23.9 million or $1.19 diluted earnings per share compared to $20.5 million or $1.26 diluted earnings per share for the year ended December 31, 2015.
• Excluding acquisition-related expenses, gain on sale of investment securities, the death benefit on bank owned life insurance, prepayment penalties on borrowings and purchase accounting adjustments, net income for the year ended December 31, 2016 increased 34.5% to $29.2 million or $1.45 diluted earnings per share compared to $21.7 million or $1.33 diluted earnings per share for the year ended December 31, 2015.
• Total loans increased 22.0% or $387.0 million during the year ended December 31, 2016.
• Total loans, excluding acquired loans, mortgage warehouse loans and loans held for sale, increased 4.3% or $69.6 million during the year ended December 31, 2016.
• Net interest income for the year ended December 31, 2016 increased 15.1% or $11.3 million compared to the year ended December 31, 2015.
• Net interest margin was 2.92% for the fourth quarter of 2016 compared to 3.37% for the prior quarter and 3.50% for the same period in 2015.
• Net interest margin, excluding the impact of the prepayment penalties on borrowings and purchase accounting adjustments (“core net interest margin”), was 3.45% for the fourth quarter of 2016 compared to 3.31% for the prior quarter and 3.38% for the same period in 2015.
• Non-interest income for the year ended December 31, 2016 increased 24.9% or $7.6 million compared to the year ended December 31, 2015.
• Horizon’s tangible book value per share rose to $11.48 at December 31, 2016, compared to $11.02 at December 31, 2015.
• Horizon opened its first loan and deposit production office in Grand Rapids, Michigan during the fourth quarter of 2016 led by David Quade, Horizon’s Grand Rapids Market President. In February 2017, we anticipate moving into our permanent downtown location with a total of 10 professionals where we will provide our full array of products and services including retail, commercial, private banking, treasury management, wealth management and mortgage services to customers throughout the Grand Rapids region.
• During the fourth quarter of 2016, Horizon began a series of balance sheet restructuring transactions to improve its overall financial position, including an increase in net interest margin, return on average assets and return on average equity. The transactions included the prepayment of $106.0 million in high fixed-rate borrowings funded from the sale of available-for-sale investment securities totaling $168.0 million. Horizon realized a loss of $4.8 million from the early redemption of the debt which was partially offset by net gains on the sale of the investment securities.
• On November 7, 2016, Horizon completed the acquisition of CNB Bancorp and its wholly-owned subsidiary, The Central National Bank and Trust Company, headquartered in Attica, Indiana and executed the system conversion on December 3, 2016.
• On December 23, 2016, the Office of the Comptroller of the Currency approved Horizon’s purchase and assumption of certain assets and liabilities of a single branch of First Farmers Bank & Trust Co. located in Bargersville, Indiana. This transaction is expected to be completed on February 3, 2017.

Craig Dwight, Chairman and CEO, commented: “I am very pleased with Horizon’s 2016 results as evidenced by our organic loan growth; our ability to complete and integrate three bank acquisitions and our expansion into two new markets. Horizon’s results for 2016 are a true testament of the quality of the Horizon team, their work ethic and ability to move the Company forward. As a result of all the hard work put forth in 2016, Horizon is positioned well for the coming year. Horizon’s balanced strategy of organic growth, expansion into new markets and well-executed acquisitions contributed to record net income for the year. Core net income was $8.5 million for the fourth quarter and $29.2 million for the year 2016, an increase of 40.7% and 34.5%, respectively, over 2015. Core diluted earnings per share were $0.38 for the fourth quarter and $1.45 for the year 2016, an increase of 14.4% and 9.0%, respectively, over 2015.”

Mr. Dwight continued, “We continued to experience strong growth in our Kalamazoo and Indianapolis markets where total loans increased $61.6 million during 2016. Also during 2016, Horizon opened loan and deposit production offices in Fort Wayne, Indiana and Grand Rapids, Michigan. Consistent with our People First philosophy, Greg Haney, Fort Wayne Market President, and David Quade, Grand Rapids Market President, bring significant experience and knowledge to the table. We look forward to providing exceptional service and sensible advice to our customers in these dynamic growth markets.”

Dwight added, “In addition to organic growth and expansion in 2016, we completed the acquisitions of Kosciusko Financial, Inc. (“Kosciusko”) and LaPorte Bancorp, Inc. (“LaPorte”) during the third quarter and the acquisition of CNB Bancorp during the fourth quarter. Each of these acquisitions was consistent with our philosophy of partnering with banks that hold similar core values and are committed to serving their local communities. Finally, we received regulatory approval for the purchase of certain assets and assumption of deposits from First Farmers Bank & Trust Co.’s Bargersville, Indiana branch which we anticipate to close on February 3, 2017, enhancing our presence in this attractive and growing central Indiana market.”

Dwight concluded, “Along with organic growth and acquisitions, we continue to review our balance sheet to improve the Bank’s overall financial position.” During the fourth quarter, Horizon began a series of balance sheet restructuring transactions with the intent of improving net interest margin, return on average assets and return on average equity. The transactions included the prepayment of approximately $106.0 million of high fixed-rate borrowings with contractual maturities ranging from June 2017 through September 2020 and repositioning the investment securities portfolio to replace certain lower yielding short-term investments consistent with a more normalized strategy and maturity periods. “This deleveraging strategy strengthens Horizon’s balance sheet by lowering outstanding debt and improves key financial metrics for the benefit of our shareholders,” Dwight commented.

Income Statement Highlights

Net income for the fourth quarter of 2016 was $5.6 million or $0.25 diluted earnings per share compared to $6.2 million or $0.34 diluted earnings per share for the fourth quarter of 2015. The decrease in net income and diluted earnings per share from the same period of 2015 reflects an increase in non-interest expense of $4.0 million, partially offset by an increase in net interest income and non-interest income of $717,000 and $2.4 million, respectively, and a decrease in income tax expense of $606,000. The decrease in diluted earnings per share was due to a decrease in lower net income and an increase in dilutive shares outstanding as a result of the stock issued in the Kosciusko and LaPorte Bancorp acquisitions. Excluding acquisition-related expenses, gain on sale of investment securities, prepayment penalties on borrowings and purchase accounting adjustments, net income for the fourth quarter of 2016 was $8.5 million or $0.38 diluted earnings per share compared to $6.0 million or $0.33 diluted earnings per share in the fourth quarter of 2015.

Net income for the year ended December 31, 2016 was $23.9 million or $1.19 diluted earnings per share compared to $20.5 million or $1.26 diluted earnings per share for the year ended December 31, 2015. The increase in net income from the previous year reflects an increase in net interest income and non-interest income of $11.3 million and $7.6 million, respectively, and a decrease in the provision for loan losses of $1.3 million, partially offset by increases in non-interest expense of $15.2 million and income tax expense of $1.6 million. The decrease in diluted earnings per share from the previous year reflects an increase in diluted shares outstanding from the stock issued in the Kosciusko and LaPorte Bancorp acquisitions. Excluding acquisition-related expenses, gain on sale of investment securities, the death benefit on bank owned life insurance, prepayment penalties on borrowings and purchase accounting adjustments, net income for the year ended December 31, 2016 was $29.2 million or $1.45 diluted earnings per share compared to $21.7 million or $1.33 diluted earnings per share for the year ended December 31, 2015.

Horizon’s net interest margin was 2.92% during the fourth quarter of 2016, down from 3.37% for the prior quarter and 3.50% for same period of 2015. The decrease in the net interest margin compared to the prior quarter and the same period of 2015 was primarily due to prepayment penalties incurred on high fixed-rate borrowings as part of Horizon’s balance sheet restructuring transaction in the fourth quarter of 2016. Offsetting this decrease in net interest margin was an increase in the yield on average loans and a decrease in the cost on average interest-bearing deposits when comparing the fourth quarter of 2016 to the same period of 2015. Excluding prepayment penalties on borrowings and acquisition-related purchase accounting adjustments, the margin would have been 3.45% for the fourth quarter of 2016 compared to 3.31% for the prior quarter and 3.38% for the same period of 2015. Interest expense from the prepayment penalties on borrowings was $4.8 million for the three months ended December 31, 2016. Interest income from acquisition-related purchase accounting adjustments was $900,000, $459,000 and $695,000 for the three months ended December 31, 2016, September 30, 2016, and December 31, 2015, respectively.

Horizon’s net interest margin was 3.29% for the year ended December 31, 2016, down from 3.56% for year ended December 31, 2015. Excluding prepayment penalties on borrowings and acquisition-related purchase accounting adjustments, the margin would have been 3.38% for the year ended December 31, 2016 compared to 3.42% for the year ended December 31, 2015. Interest expense from the prepayment penalties on borrowings was $4.8 million for the year ended December 31, 2016. Interest income from acquisition-related purchase accounting adjustments was $2.3 million and $3.0 million for the years ended December 31, 2016 and 2015, respectively.

Lending Activity

Total loans increased $387.0 million from $1.8 billion as of December 31, 2015 to $2.1 billion as of December 31, 2016 as commercial loans increased by $265.0 million, residential mortgage loans increased by $94.7 million and consumer loans increased by $36.1 million. Offsetting these increases was a decrease in mortgage warehouse loans of $9.0 million as of December 31, 2016. Total loans, excluding acquired loans, mortgage warehouse loans and loans held for sale, increased 4.3% for the year ended December 31, 2016. Excluding the mortgage warehouse relationships acquired through the LaPorte Bancorp merger, Horizon mortgage warehouse loans decreased by $41.9 million to $102.8 million at December 31, 2016 compared to $144.7 million at December 31, 2015.

Residential mortgage lending activity during the year ended December 31, 2016 generated $11.7 million in income from the gain on sale of mortgage loans, an increase of $1.6 million from the same period of 2015. Total origination volume for the year ended December 31, 2016, including loans placed into portfolio, totaled $459.8 million, representing an increase of 8.7% from the same period of 2015. Purchase money mortgage originations during the fourth quarter of 2016 represented 65.7% of total originations compared to 66.5% of originations during the previous quarter and 68.7% during the fourth quarter of 2015.

Loan balances in the Kalamazoo and Indianapolis markets totaled $185.9 million and $206.9 million, respectively, as of December 31, 2016. Combined, these markets contributed $61.6 million, or 18.6%, in loan growth during the year ended December 31, 2016.

The provision for loan losses was $623,000 for the fourth quarter of 2016 compared to $342,000 for the same period of 2015. The increase in the provision for loan losses during the fourth quarter of 2016 was due to continued loan growth. The provision for loan losses for the year ended December 31, 2016 was $1.8 million compared to $3.2 million for the same period of 2015. The decrease in the provision for loan losses for the year ended December 31, 2016 was due to lower charge-offs, stable delinquency trends and a decrease in non-performing loans.

The ratio of the allowance for loan losses to total loans decreased to 0.69% as of December 31, 2016 from 0.83% as of December 31, 2015 due to an increase in total loans. The ratio of the allowance for loan losses to total loans, excluding loans with credit-related purchase accounting adjustments, was 0.91% as of December 31, 2016 compared to 0.99% as of December 31, 2015. Loan loss reserves and credit-related loan discounts on acquired loans as a percentage of total loans was 1.39% as of December 31, 2016 compared to 1.32% as of December 31, 2015.

Non-performing loans to total loans declined 45 basis points to 0.50% at December 31, 2016 from 0.95% at December 31, 2015. Non-performing loans totaled $10.7 million as of December 31, 2016 a decrease of $6.0 million from $16.7 million as of December 31, 2015. Compared to December 31, 2015, non-performing commercial loans decreased by $4.6 million, non-performing real estate loans decreased by $1.2 million and non-performing consumer loans decreased $209,000.

Expense Management

Total non-interest expense was $4.0 million higher in the fourth quarter of 2016 compared to the same period of 2015. The increase was primarily due to an increase in salaries, net occupancy expenses, data processing, professional fees, loan expense, and other expense reflecting overall company growth. Outside services and consultants expense increased primarily due to the expense associated with the LaPorte and CNB Bancorp acquisitions. Non-interest expense for the fourth quarter of 2016 included $1.4 million of one- time merger-related expenses due to the LaPorte Bancorp and CNB Bancorp acquisitions compared to $525,000 in one-time merger-related expenses during the same period of 2015 due to the Peoples Bancorp acquisition. Employee benefits expense decreased $685,000 in the fourth quarter of 2016 compared to the same period in 2015 due to a decrease in a pension liability as a result of the rise in interest rates and a decrease in the number of participants. FDIC insurance expense decreased $120,000 in the fourth quarter of 2016 when compared to the same period of 2015 as the assessment rate schedule was reduced effective for assessment payments due in the fourth quarter of 2016.

Total non-interest expense was $15.2 million higher for the year ended December 31, 2016 compared to the same period of 2015. The increase in non-interest expense was due to an increase in salaries expense of $5.6 million, employee benefits of $664,000, net occupancy expenses of $1.9 million, data processing expense of $1.1 million, professional fees of $682,000, loan expense of $203,000, other losses of $252,000 and other expense of $2.6 million due to overall company growth. Outside services and consultants expense increased $2.1 million primarily due to the expense associated with the Kosciusko, LaPorte and CNB Bancorp acquisitions. Non-interest expense for the year ended December 31, 2016 included $6.8 million of one-time merger-related expenses due to the Kosciusko, LaPorte Bancorp and CNB Bancorp acquisitions compared to $4.9 million in one-time merger-related expenses in the same period of 2015 due to the Peoples Bancorp acquisition.

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, total loans and loan growth, 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. See the tables and other information contained elsewhere in this press release for reconciliations of the non-GAAP figures identified herein and their most comparable GAAP measures.

About Horizon

Horizon Bancorp is an independent, commercial bank holding company serving northern and central Indiana and southwest and central 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.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