Horizon Bancorp, Inc. Announces Record Quarterly and Year-to-Date Earnings

MICHIGAN CITY, Ind., July 25, 2018 (GLOBE NEWSWIRE) -- (NASDAQ:HBNC) – Horizon Bancorp, Inc. (“Horizon” or the “Company”) today announced its unaudited financial results for the three-month and six-month periods ended June 30, 2018. All share data has been adjusted to reflect Horizon’s three-for-two stock split effective June 15, 2018. 

SUMMARY:

• Net income for the quarter ended June 30, 2018 was $14.1 million, or $0.37 diluted earnings per share, compared to $9.1 million, or $0.27 diluted earnings per share, for the quarter ended June 30, 2017 resulting in a 37.0% increase in diluted earnings per share. This represents the highest quarterly net income and diluted earnings per share in the Company’s 145-year history.
• Net income for the first six months of 2018 was $26.9 million, or $0.70 diluted earnings per share, compared to $17.3 million, or $0.51 diluted earnings per share, for the first six months of 2017 resulting in a 34.6% increase in diluted earnings per share. This represents the highest year-to-date net income and diluted earnings per share as of June 30^th in the Company’s 145-year history.
• Return on average assets was 1.41% for the second quarter of 2018 compared to 1.12% for the second quarter of 2017. Return on average assets for the first six months of 2018 was 1.36% compared to 1.10% for the first six months of 2017.
• Return on average equity was 12.15% for the second quarter of 2018 compared to 10.24% for the second quarter of 2017. Return on average equity was 11.72% for the first six months of 2018 compared to 9.96% for the first six months of 2017.
• Total loans increased by an annualized rate of 6.6%, or $92.4 million, during the first six months of 2018.
• Consumer loans increased by an annualized rate of 20.5%, or $46.9 million, during the first six months of 2018.
• Residential mortgage loans increased by an annualized rate of 9.3%, or $27.9 million, during the first six months of 2018.
• Total deposits increased by an annualized rate of 9.5%, or $135.2 million, during the first six months of 2018.
• Net interest income increased $6.4 million, or 23.4%, to $33.6 million for the three months ended June 30, 2018 compared to $27.2 million for the three months ended June 30, 2017. Net interest income increased $14.2 million, or 26.9%, to $67.0 million for the six months ended June 30, 2018 compared to $52.8 million for the six months ended June 30, 2017.
• Net interest margin was 3.78% for the three months ended June 30, 2018 compared to 3.84% for the three months ended June 30, 2017. Net interest margin for the six months ended June 30, 2018 and 2017 was 3.81%.
• Horizon’s tangible book value per share increased to $8.84 at June 30, 2018 compared to $8.48 and $8.13 at December 31, 2017 and June 30, 2017, respectively. This represents the highest tangible book value per share in the Company’s 145-year history.

Craig Dwight, Chairman and CEO of Horizon, commented: “I am very pleased to announce record quarterly and year-to-date earnings for Horizon. Net income for the second quarter of 2018 increased $5.0 million, or 55.6%, to $14.1 million when compared to the prior year. Diluted earnings per share for the quarter increased to $0.37 per share compared to $0.27 per share during the same quarter last year. Horizon’s net income and diluted earnings per share for the six months ended June 30, 2018 increased to $26.9 million and $0.70 per share compared to $17.3 million and $0.51 per share for the prior year.”

Dwight continued, “For the first time in our 145-year history, Horizon surpassed $4.0 billion in total assets. We continue to experience modest loan growth during 2018 as total loans increased at an annualized rate of 6.6% during the first six months of the year. Loan growth was led by consumer and mortgage loan annualized growth of 20.5% and 9.3%, respectively. Commercial loan payoffs totaling approximately $97.8 million during 2018 have tempered commercial loan growth. The majority of these payoffs were as a result of business and/or real estate assets being sold. The Bank did originate approximately $141.0 million in commercial loans during the first six months of 2018; however, only 59.6%, or $84.0 million, of these loan originations had been funded as of June 30, 2018. Horizon’s growth markets are still producing solid results as Fort Wayne, Grand Rapids, Indianapolis and the Kalamazoo markets grew loan balances by $34.3 million, for an annualized rate of 13.7%, during the first six months of 2018.”

Dwight added, “During the second quarter, we continued to expand our footprint with the opening of two loan production offices, one in Holland, Michigan and the other in Noblesville, Indiana. The Noblesville office will be converted to a full-service branch location in the third quarter of 2018. Noblesville, Indiana is the county seat for Hamilton County, one of the fastest growing counties in the State of Indiana and contiguous to Indianapolis, Indiana. We look forward to providing Horizon’s exceptional service to both of these communities.”

Dwight concluded, “Horizon continued to fully realize the cost savings from our 2017 acquisitions of Lafayette Community Bancorp and Wolverine Bancorp, Inc. during the first six months of 2018. The realization of these cost savings, in addition to other operational leveraging strategies implemented during 2018 have resulted in a continued decrease in our quarterly efficiency ratio from 64.44% for the fourth quarter of 2017 to 58.71% for the second quarter of 2018.”

Income Statement Highlights

Net income for the second quarter of 2018 was $14.1 million, or $0.37 diluted earnings per share, compared to $12.8 million, or $0.33 diluted earnings per share, for the first quarter of 2018 and $9.1 million, or $0.27 diluted earnings per share, for the second quarter of 2017. Excluding acquisition-related expenses, gain on sale of investment securities, death benefit on bank owned life insurance and purchase accounting adjustments (“core net income”), core net income for the second quarter of 2018 was $12.7 million, or $0.33 diluted earnings per share, compared to $11.2 million, or $0.29 diluted earnings per share, for the first quarter of 2018 and $8.6 million, or $0.26 diluted earnings per share, for the second quarter of 2017. This represents an increase in core diluted earnings per share of 13.8% and 26.9% when compared to the quarters ending March 31, 2018 and June 30, 2017, respectively.

The increase in net income and diluted earnings per share from the first quarter of 2018 to the second quarter of 2018 reflects increases in net interest income of $139,000 and non-interest income of $614,000 and a decrease in non-interest expense of $895,000, partially offset by an increase in income tax expense of $269,000.

The increase in non-interest income from the first quarter of 2018 to the second quarter of 2018 was due to an increase in the gain on sale of mortgage loans, mortgage servicing income, interchange fees and a death benefit received on bank owned life insurance.

The increase in net income and diluted earnings per share from the second quarter of 2017 to the same 2018 period reflects an increase in net interest income of $6.4 million, an increase in non-interest income of $720,000 and a decrease in income tax expense of $730,000, partially offset by increases in non-interest expense of $2.5 million and provision for loan losses of $305,000.

Net income for the six months ended June 30, 2018 was $26.9 million, or $0.70 diluted earnings per share, compared to $17.3 million, or $0.52 diluted earnings per share, for the six months ended June 30, 2017. Core net income for the six months ended June 30, 2018 was $23.9 million, or $0.62 diluted earnings per share, compared to $16.1 million, or $0.47 diluted earnings per share, for the six months ended June 30, 2017. This represents a 31.9% increase in core diluted earnings per share for the first six months of 2018 compared to the same period in 2017.

The increase in net income and diluted earnings per share during the first six months of 2018 when compared to the same period of 2017 reflects increases in net interest income of $14.2 million and non-interest income of $1.5 million and a decrease in income tax expense of $1.3 million, partially offset by increases in non-interest expense of $6.8 million and provision for loan losses of $542,000.

Horizon’s net interest margin decreased to 3.78% for the second quarter of 2018 when compared to 3.81% for the first quarter of 2018 and 3.84% for the second quarter of 2017. The decrease in net interest margin from the first quarter of 2018 reflects an increase in the cost of interest-bearing liabilities of 13 basis points, offset by an increase in the yield of interest-earning assets of 7 basis points. The increase in the cost of interest-bearing liabilities was due to an increase in the cost of interest-bearing deposits of 14 basis points, borrowings of 21 basis points and subordinated debentures of 14 basis points. The increase in the yield of interest-earning assets was due to an increase in the yield on loans receivable of 4 basis points, taxable investment securities of 11 basis points and non-taxable investment securities of 27 basis points.

The decrease in net interest margin from the second quarter of 2017 reflects an increase in the cost of interest-bearing liabilities of 37 basis points, offset by an increase in the yield of interest-earning assets of 24 basis points. The increase in the cost of interest-bearing liabilities was due to an increase in the cost of interest-bearing deposits of 30 basis points, borrowings of 70 basis points and subordinated debentures of 45 basis points. The increase in the yield of interest-earning assets was due to an increase in the yield on loans receivable of 14 basis points and taxable investment securities of 31 basis points, offset by a decrease in the yield on non-taxable investment securities of 25 basis points.

Excluding acquisition-related purchase accounting adjustments (“core net interest margin”), the core net interest margin was 3.60% for the second quarter of 2018 compared to 3.55% for the prior quarter and 3.71% for the second quarter of 2017. The increase in core net interest margin from the first quarter of 2018 to the second quarter of 2018 was due to an increase in the yield on interest-earning assets offset by an increase in the cost of interest-bearing liabilities. The decrease in core net interest margin from the second quarter of 2017 to the second quarter of 2018 was due to an increased cost of funding when comparing the periods. Interest income from acquisition-related purchase accounting adjustments was $1.6 million, $2.0 million and $939,000 for the three months ended June 30, 2018, March 31, 2018 and June 30, 2017, respectively.

Horizon’s net interest margin held steady at 3.81% when comparing the six months ended June 30, 2018 to the six months ended June 30, 2017. The yield on interest-earning assets increased 26 basis points, primarily due to an increase in the yields earned on loans receivable of 20 basis points and taxable investment securities of 15 basis points, offset by a decrease in the yield earned on non-taxable securities of 27 basis points. The cost of interest-bearing liabilities increased 32 basis points, primarily due to an increase in the cost of interest-bearing deposits of 22 basis points and borrowings of 58 basis points.

Core net interest margin for the six months ended June 30, 2018 was 3.61% compared to 3.67% for the six months ended June 30, 2017. Interest income from acquisition-related purchase accounting adjustments was $3.7 million and $2.0 million for the six months ended June 30, 2018 and 2017, respectively.

Lending Activity

Total loans increased $92.4 million from $2.835 billion as of December 31, 2017 to $2.928 billion as of June 30, 2018 as consumer loans increased by $46.9 million, residential mortgage loans increased by $27.9 million, mortgage warehouse loans increased by $14.5 million and commercial loans increased by $3.3 million. Consumer loans increased at an annualized rate of 20.5%, primarily due to our experienced consumer loan team and increased focus on growing this portfolio. During the first six months of 2018, the Bank originated approximately $141.0 million in commercial loans; however, only $84.0 million, or 59.6%, of the total originated loans were funded as of June 30, 2018. This growth was offset by approximately $97.8 million in commercial loan payoffs, the majority of which were as a result of business and/or real estate assets being sold. 

Residential mortgage lending activity for the three months ended June 30, 2018 generated $1.9 million in income from the gain on sale of mortgage loans, an increase of $473,000 from the first quarter of 2018 and a decrease of $158,000 from the second quarter of 2017. Total origination volume for the second quarter of 2018, including loans placed into portfolio, totaled $109.0 million, representing an increase of 50.8% from the first quarter of 2018 and a decrease of 1.2% from the second quarter of 2017. Revenue derived from Horizon’s residential mortgage lending activities was only 6.9% and 6.1% of Horizon’s total revenue for the second quarter of 2018 and the six months ended June 30, 2018, respectively.  

Purchase money mortgage originations during the second quarter of 2018 represented 85.6% of total originations compared to 76.6% of total originations during the first quarter of 2018 and 78.4% during the second quarter of 2017.

The provision for loan losses totaled $635,000 for the second quarter of 2018 compared to $567,000 for the first quarter of 2018 and $330,000 for the second quarter of 2017. The increase in the provision for loan losses from the second quarter of 2017 to the second quarter of 2018 was due to additional general and non-specific allocations for loan growth in new markets, higher than anticipated growth of the indirect loan portfolio and an increase in allocation for other economic factors, including the potential of a recession.

The provision for loan losses totaled $1.2 million for the six months ended June 30, 2018 compared to $660,000 for the six months ended June 30, 2017. The increase in the provision for loan losses from 2017 to 2018 was due to additional general and non-specific allocations for loan growth in new markets, higher than anticipated growth of the indirect loan portfolio and an increase in allocation for other economic factors, including the potential of a recession.

The ratio of the allowance for loan losses to total loans was 0.58% as of June 30, 2018 and December 31, 2017. The ratio of the allowance for loan losses to total loans, excluding loans with credit-related purchase accounting adjustments, was 0.75% as of June 30, 2018 compared to 0.81% as of December 31, 2017. Loan loss reserves and credit-related loan discounts on acquired loans as a percentage of total loans was 1.08% as of June 30, 2018 compared to 1.23% as of December 31, 2017.

As of June 30, 2018, non-performing loans totaled $15.4 million, which reflects a five basis point decrease in non-performing loans to total loans, or a $1.0 million decline from $16.4 million in non-performing loans as of December 31, 2017. Compared to December 31, 2017, non-performing commercial loans increased by $1.6 million, non-performing real estate loans decreased by $1.8 million and non-performing consumer loans decreased by $837,000. Other real estate owned and repossessed assets totaled $3.0 million as of June 30, 2018 which is an increase of $2.2 million from December 31, 2017. The majority of this increase was due to several bank owned properties acquired through acquisitions and listed for sale being re-classified to other real estate owned and recorded at fair value during the second quarter of 2018.  

Expense Management

Total non-interest expense was $895,000 lower in the second quarter of 2018 when compared to the first quarter of 2018. The decrease in non-interest expense was due to decreases in salaries and employee benefits, net occupancy expenses and professional fees. These decreases were offset by increases in loan expense and other losses when comparing the second quarter of 2018 to the first quarter of 2018.

Salaries and employee benefits expense was $564,000 lower during the second quarter of 2018 when compared to the first quarter of 2018, due to lower employment and unemployment taxes, health insurance, 401K and supplemental employee retirement plan match expenses. Employment and unemployment taxes and health insurance expense is typically higher during the first quarter of the year due to the nature of these expenses. Expenses related to the Company’s match on 401K and supplemental employee retirement plans were higher during the first quarter as a result of the 2017 bonuses paid in March 2018. Net occupancy expense was $446,000 lower when compared to the first quarter of 2018 due to reduced snow removal expenses during the second quarter of 2018. Professional fees decreased $125,000 during the second quarter of 2018 when compared to the first quarter of 2018. These decreases were offset by increases in loan expense of $268,000 due to an increase in loan collection expense and other losses of $123,000 due to write-downs on other bank owned properties and a $150,000 accrual for a potential loss on a fiduciary account during the second quarter of 2018.

Total non-interest expense was $2.5 million higher during the second quarter of 2018 compared to the same period of 2017. The increase was primarily due to an increase in salaries and employee benefits of $1.3 million, net occupancy expense of $324,000, loan expense of $275,000, other expense of $271,000, other losses of $191,000, data processing of $105,000 and FDIC insurance expense of $102,000. The increase in salaries and employee benefits, net occupancy expense, other expense, data processing expense and FDIC insurance expense reflect overall company growth and the acquisitions of Lafayette Community Bancorp and Wolverine Bancorp, Inc. during the third and fourth quarters of 2017. Loan expense increased due to a higher level of loan originations and loan collection expenses when compared to the second quarter of 2017. Other losses increased primarily due to write-downs on other bank owned properties and an accrual for a potential loss on a fiduciary account recorded during the second quarter of 2018.

Total non-interest expense was $6.8 million higher for the six months ended June 30, 2018 when compared to the six months ended June 30, 2017. The increase was primarily due to increases in salaries and employee benefits of $4.0 million, net occupancy expenses of $838,000, other expense of $797,000, data processing of $494,000 and loan expense of $425,000. The increase in salaries and employee benefits, net occupancy expense, other expense and data processing expense reflect overall company growth and recent acquisitions, in addition to the higher first quarter 2018 expenses mentioned above. Loan expense increased due to a higher level of loan originations and collection expenses during the six months ended June 30, 2018 when compared to the same period of 2017. Offsetting these increases was a decrease of $271,000 in professional fees primarily due to a lack of acquisition-related expenses in 2018.

Income tax expense totaled $2.8 million for the second quarter of 2018, an increase of $269,000 when compared to the first quarter of 2018 and a decrease of $730,000 when compared to the second quarter of 2017. The increase in income tax expense from the first quarter of 2018 was primarily due to an increase in income before income tax of $1.6 million during the second quarter of 2018. The decrease when comparing the second quarter of 2018 to the same prior year period was primarily due to the impact of the new corporate tax rate which was signed into law at the end of 2017 and the benefits from the exercising of stock options.

Income tax expense totaled $5.3 million for the six months ended June 30, 2018, a decrease of $1.3 million when compared to the six months ended June 30, 2017. The decrease was primarily due to the impact of the new corporate tax rate which was signed into law at the end of 2017 and the benefits from the exercising of stock options. This decrease was offset by an increase in income before income tax expense of $8.4 million when comparing the first six months of 2018 to the prior year.

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 relating to net income, diluted earnings per share, net interest margin, total loans and loan growth, the allowance for loan and lease losses, tangible stockholders’ equity, tangible book value per share, the return on average assets and the return on average equity. In each case, we have identified special circumstances that we consider to be non-recurring and have excluded them, to show the impact of such events as acquisition-related purchase accounting adjustments, prepayment penalties on borrowings and the tax reform bill, among others we have identified in our reconciliations. 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. 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 below and 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, Inc. is an independent, commercial bank holding company serving northern and central Indiana, and southern, central and the Great Lakes Bay regions of Michigan through its commercial banking subsidiary Horizon Bank. Horizon also offers mortgage-banking services throughout the Midwest. Horizon 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.

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