News Column

Horizon Bancorp Reports Annual Results

January 27, 2014

Horizon Bancorp announced its unaudited financial results for the three and twelve-month periods ended December 31, 2013 . In a release on January 22 , the company noted the following summary and highlights: -Net income of $19.9 million for 2013 surpasses the $19.5 million earned in the prior year and represents the highest annual net income in the Company's history. -Fourth quarter 2013 net income declined 20.4 percent compared to the same period in 2012 to $4.1 million or $.45 diluted earnings per share, with the decline primarily reflecting lower income from residential lending, including mortgage warehousing, as activity slowed during the quarter. -Net income for the year ending December 31, 2013 rose 1.7 percent compared to the same period in 2012 to $19.9 million or $2.17 diluted earnings per share. -On November 13, 2013 , Horizon announced the acquisition of SCB Bancorp, Inc. and its subsidiary, Summit Community Bank , headquartered in East Lansing, Michigan . The transaction is expected to be completed in the second quarter of 2014, subject to regulatory and SCB Bancorp's shareholder approval. -Net interest income, after provisions for loan losses, for 2013 was $59.5 million compared to $54.7 million for 2012, primarily reflecting commercial loan growth that helped offset lower mortgage warehouse revenue. -Non-interest income declined 5.2 percent to $25.9 million for 2013 compared with $27.3 million for 2012, primarily reflecting a decrease in gain on sale of mortgage loans of $5.3 million , partially offset by an increase in service charges on deposit accounts, fees from debit and credit card interchange services and mortgage servicing income. -The provision for loan losses decreased to $1.9 million for the year ended December 31, 2013 compared to $3.5 million for 2012. -Non-performing loans decreased to $18.3 million as of December 31, 2013 from $23.8 million as of December 31, 2012 , and substandard loans decreased to $34.7 million as of December 31, 2013 from $50.2 million as of December 31, 2012 . -Return on average assets was 0.93 percent for the fourth quarter of 2013 and 1.13 percent for the year ended December 31, 2013 . -Return on average common equity was 10.44 percent for the fourth quarter of 2013 and 12.86 percent for the year ended December 31, 2013 . -Tangible book value per share increased to $14.98 at December 31, 2013 , compared to $14.82 and $14.23 at September 30, 2013 and December 31, 2012 , respectively. - Horizon Bank's capital ratios, including Tier 1 Capital to Average Assets Ratio of 9.25 percent and Total Capital to Risk Weighted Assets Ratio of 14.38 percent as of December 31, 2013 , continue to be well above the regulatory standards for well- capitalized banks. Craig M. Dwight , Chairman and CEO, said: "We are extremely pleased to announce record 2013 earnings for the 14th consecutive year. This feat was accomplished despite a significant slowdown in residential mortgage activity during the second half of 2013. Our balanced approach of focusing on all four core banking revenue sources- business banking, retail banking, residential mortgage lending and investment management- proved invaluable to achieving these record results and will continue to be a critical component of our future success." "Throughout 2013, we continued to operate in a sluggish economy with highly competitive dynamics for quality asset growth. Given the environment, we aggressively sought ways to maximize growth opportunities while remaining disciplined and vigilant in our approach. By investing in good people, entering new markets and seeking strategic partnerships we continued to lay the foundation for future success while attaining record financial performance in the process." "As anticipated, the rise in interest rates slowed residential mortgage lending activity during the second half of 2013, affecting both our residential mortgage origination and mortgage warehouse revenue streams. Despite this slowdown, we made significant strides growing our commercial loan portfolio, low cost deposits and assets under management in our investment group. During 2013, commercial loans grew 9.7 percent to $505.2 million , non-interest bearing deposits grew 10.5 percent to $231.1 million and assets under management reached $899.0 million as of December 31, 2013 . In addition, we reduced our non-performing loans by $4.2 million , or 18.7 percent, in the fourth quarter of 2013 allowing us to realize a negative provision for the quarter of $997,000 ." On November 12, 2013 , the Company entered into an agreement to acquire SCB Bancorp, Inc. ("SCB") and its subsidiary, Summit Community Bank , in a cash and stock merger. The acquisition is expected to close during the second quarter of 2014, subject to regulatory and SCB Bancorp, Inc. shareholder approval. Headquartered in East Lansing, Michigan , SCB, through its subsidiary Summit Community Bank , serves the greater Lansing area through two full- service banking locations. As of September 30, 2013 , Summit Community Bank had total assets of $161.0 million . Dwight noted, "We view the partnership with SCB Bancorp as an excellent opportunity to bring a top notch local banking team, strong customer base and a diverse economic market to the Horizon organization. The SCB acquisition, coupled with our recent investments in markets such as Indianapolis and Lake County, Indiana as well as Grand Rapids, Michigan , provides a tremendous foundation for growth in 2014 and beyond." "Horizon is also excited to announce the opening of a full- service branch in downtown Indianapolis, Indiana and a new high school branch in Michigan City, Indiana . Our current team in the Indianapolis loan production office will move to this new full- service location in late January of 2014. The new high school branch, also scheduled to open in January of 2014, will employ local students and provide them a future career path in banking." Income Statement Highlights Net income for the fourth quarter of 2013 decreased 20.4 percent to $4.1 million or $.45 diluted earnings per share, compared to $5.2 million or $.56 diluted earnings per share in the fourth quarter of 2012. The decrease in net income for the fourth quarter primarily reflects the decline in mortgage warehouse activity as mortgage warehouse balances decreased from $251.5 million as of December 31, 2012 to $98.2 million as of December 31, 2013 and the decrease in gain on sale of mortgage loans of $2.8 million from $4.0 million in the fourth quarter of 2012 to $1.2 million in the fourth quarter of 2013. Net income for the year ended December 31, 2013 increased 1.7 percent to $19.9 million or $2.17 diluted earnings per share, compared to $19.5 million or $2.30 diluted earnings per share for the year ended December 31, 2012 . The decline in earnings per share reflects the increase in weighted average diluted shares outstanding resulting from the Heartland acquisition, which occurred during the third quarter of 2012. The Company's net interest margin was 3.60 percent during the three-month period ended December 31, 2013 , compared with 4.16 percent for the three-month period ending December 31, 2012 . Interest income during the fourth quarter of 2013 included approximately $850,000 of interest income from Heartland loan valuation discounts recognized at the time of acquisition being accreted and discounts recognized from loans paying off compared to approximately $1.5 million in the fourth quarter of 2012. Excluding the interest income recognized from the loan discounts, the margin would have been 3.39 percent for the three-month period ending December 31, 2013 compared to 3.81 percent for the three-month period ending December 31, 2012 . The decrease in net interest margin was primarily attributable to a reduction in mortgage warehouse activity in the fourth quarter of 2013 compared to the fourth quarter of 2012. The net interest margin was 3.96 percent for the year ending December 31 , of 2013, up from 3.89 percent for the same period in 2012. Excluding the interest income recognized from the loan discounts of $6.3 million for the year ending December 31, 2013 and $1.5 million for the year ending December 31, 2012 , the margin would have been 3.57 percent for the year ending December 31, 2013 compared to 3.79 percent for the same period of 2012. Residential mortgage lending activity during the fourth quarter of 2013 generated $1.2 million in income from the gain on sale of mortgage loans, a decrease of $453,000 from the third quarter of 2013 and $2.8 million from the fourth quarter of 2012. Total origination volume in the fourth quarter of 2013 totaled $67.4 million , representing a decrease of 36.2 percent from the previous quarter of $105.7 and a decrease of 45.9 percent from the fourth quarter of 2012 of $124.7 million . The reduction in the gain on sale of mortgages was due to a decrease in total origination volume and a decrease in the percentage earned on the sale of these loans. Purchase money mortgage originations during the fourth quarter of 2013 represented 75.4 percent of total originations compared to 69.5 percent of originations during the third quarter of 2013 and 43.2 percent during the fourth quarter of 2012. Lending Activity Total loans decreased from $1.2 billion at December 31, 2012 to $1.1 billion at December 31, 2013 as mortgage warehouse loans decreased by $153.3 million , residential mortgage loans decreased by $3.8 million and consumer loans decreased by $9.6 million , partially offset by commercial loan growth. Commercial loans increased from $460.5 million at December 31, 2012 to $505.2 million at December 31, 2013 . "Despite the highly competitive market for quality loans, we continue to make progress in the growth of our commercial portfolio and overall business banking platform," Dwight commented. "We have made excellent additions to our already outstanding commercial team and continue to invest in markets that offer additional growth potential." Total loan balances in the Kalamazoo and Indianapolis markets continued to grow during 2013 to $115.1 million and $71.0 million , respectively, as of December 31, 2013 . Kalamazoo's aggregate loan balances increased $26.1 million or 29.3 percent and Indianapolis' aggregate loan balances increased $37.1 million or 109.4 percent compared to December 31, 2012 . In the fourth quarter of 2013, the Company realized a negative provision for loan losses of $997,000 , which was $2.7 million lower than the provision of $1.7 million for the same period of the prior year. For the year ended December 31, 2013 , the provision for loan losses was $1.9 million , which was $1.6 million less than the provision of $3.5 million for the same period of the prior year. The lower provision for loan losses in the fourth quarter and the year ending December 31, 2013 compared to the same periods of 2012 was primarily due to continued improvement of nonperforming and substandard loans resulting in the release of specific reserves. The ratio of the allowance for loan losses to total loans decreased to 1.49 percent as of December 31, 2013 from 1.52 percent as of December 31, 2012 . The decrease in allowance for loan losses from $18.3 million as of December 31, 2012 to $16.0 million as of December 31, 2013 was primarily due to loans with specific reserves charged off or released due to improved performance during the year ending December 31, 2013 . Non-performing loans totaled $18.3 million as of December 31, 2013 , down from $23.8 million as of December 31, 2012 Compared to December 31, 2012 , non-performing commercial loans and real estate loans decreased by $3.2 million and $3.0 million , respectively, partially offset by an increase of $730,000 in non-performing consumer loans. The increase in non-performing consumer loans from December 31, 2012 was primarily due to the addition of three large home equity lines of credit, which have specific reserves included in the allowance for loan losses. As a percentage of total loans, non-performing loans were 1.70 percent at December 31, 2013 , down 27 basis points from 1.97 percent at December 31, 2012 . At December 31, 2013 , loans acquired in the Heartland acquisition represented $4.2 million in non-performing, $10.3 million in substandard and $323,000 in delinquent loans, which compares to $7.3 million in non-performing, $18.1 million in substandard and $3.4 million in delinquent loans represented at December 31, 2012 . Expense Management Total non-interest expense was $4.4 million higher in 2013 compared to 2012 and $234,000 lower in the fourth quarter of 2013 compared to the fourth quarter of 2012. The increase in 2013 compared to the previous year was primarily due to an increase in salaries and employee benefits costs as well as other expenses. In addition, some of the increase in 2013 compared to 2012 was also related to the Heartland acquisition as 2013 was the first full year following the completion of the transaction. The decrease in the fourth quarter of 2013 compared to the same period in 2012 was primarily due to decreases in professional fees, loan expenses and other expenses which were partially offset by increases in salaries and other losses. Dwight concluded: "We are delighted to close out Horizon's 140th year by achieving record results, which were only possible as a result of the hard work and dedication of our outstanding group of employees. We intend to build on this past success by remaining focused on our four balanced revenue streams, targeting growth in Indiana and Michigan , improving productivity and building 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. More information: www.horizonbank.com . ((Comments on this story may be sent to newsdesk@closeupmedia.com ))


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