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

MICHIGAN CITY, Ind., Oct. 29, 2018 (GLOBE NEWSWIRE) -- (NASDAQ GS: HBNC) – Horizon Bancorp, Inc. (“Horizon” or the “Company”) today announced its unaudited financial results for the three-month and nine-month periods ended September 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 September 30, 2018 was $13.1 million, or $0.34 diluted earnings per share, compared to $8.2 million, or $0.24 diluted earnings per share, for the quarter ended September 30, 2017 resulting in a 41.7% increase in diluted earnings per share.
  
  
• Net income for the first nine months of 2018 was $40.0 million, or $1.04 diluted earnings per share, compared to $25.5 million, or $0.75 diluted earnings per share, for the first nine months of 2017 resulting in a 38.7% increase in diluted earnings per share. This represents the highest year-to-date net income and diluted earnings per share as of September 30^th in the Company’s 145-year history.
  
  
• Return on average assets was 1.26% for the third quarter of 2018 compared to 0.96% for the third quarter of 2017. Return on average assets for the first nine months of 2018 was 1.33% compared to 1.05% for the first nine months of 2017.
  
  
• Return on average equity was 10.87% for the third quarter of 2018 compared to 8.92% for the third quarter of 2017. Return on average equity was 11.43% for the first nine months of 2018 compared to 9.59% for the first nine months of 2017.
  
  
• Total loans increased by an annualized rate of 4.3%, or $31.8 million, during the three months ended September 30, 2018. Total loans, excluding loans held for sale and mortgage warehouse loans, increased by an annualized rate of 9.9%, or $70.5 million, during the three months ended September 30, 2018.
  
  
• Total loans increased by an annualized rate of 5.9%, or $124.3 million, during the first nine months of 2018. Total loans, excluding loans held for sale and mortgage warehouse loans, increased by an annualized rate of 7.3%, or $148.5 million, during the first nine months of 2018.
  
  
• Commercial loans increased by an annualized rate of 6.1%, or $25.6 million, during the third quarter of 2018.
  
  
• Residential mortgage loans increased by an annualized rate of 10.4%, or $16.6 million, during the third quarter of 2018.
  
  
• Consumer loans increased by an annualized rate of 22.1%, or $28.3 million, during the third quarter of 2018.
  
  
• Total deposits increased by an annualized rate of 11.5%, or $247.6 million, during the first nine months of 2018.
  
  
• Net interest income increased $5.9 million, or 21.1%, to $33.8 million for the three months ended September 30, 2018 compared to $27.9 million for the three months ended September 30, 2017. Net interest income increased $20.1 million, or 24.9%, to $100.7 million for the nine months ended September 30, 2018 compared to $80.6 million for the nine months ended September 30, 2017.
  
  
• Net interest margin was 3.67% for the three months ended September 30, 2018 compared to 3.71% for the three months ended September 30, 2017. Net interest margin was 3.74% for the nine months ended September 30, 2018 and 3.77% for the nine months ended September 30, 2017.
  
  
• Horizon’s tangible book value per share increased to $9.04 at September 30, 2018 compared to $8.48 and $8.25 at December 31, 2017 and September 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:  “Horizon’s 2018 third quarter and year-to-date results demonstrate our ability to generate organic growth and produce solid returns, through increased mass and scale and investments in growth markets. Horizon’s 2018 third quarter earnings of $0.34 diluted earnings per share is a 41.7% increase from our 2017 third quarter earnings of $0.24 diluted earnings per share. Net income increased $4.9 million, or 59.9%, to $13.1 million when compared to the prior year period.”

Dwight added, “Total assets increased to over $4.1 billion at September 30, 2018 which reflects Horizon’s solid loan growth of $124.3 million since the beginning of the year. Total loans have increased at an annualized rate of 5.9% with increases in consumer loans of $75.1 million, mortgage loans of $44.5 million and commercial loans of $28.9 million. Commercial loan growth continues to be tempered by loan payoffs totaling approximately $134.5 million during 2018. Horizon originated approximately $257.0 million in commercial loans during the first nine months of 2018; however, only 63.4%, or $163.0 million, of these originations had been funded as of September 30, 2018. Our investments in the growth markets of Fort Wayne, Grand Rapids, Indianapolis and Kalamazoo experienced an increase in loan balances of $70.6 million, or an annualized rate of 18.6%, during the first nine months of 2018.”

Dwight concluded, “The impact of cost savings from our 2017 acquisitions of Lafayette Community Bancorp and Wolverine Bancorp, Inc., in addition to other operational leverage strategies have resulted in an improved efficiency ratio. Horizon’s efficiency ratio has decreased from 68.30% for the third quarter of 2017, which included merger expenses, to 60.34% for the third quarter of 2018.”    

Income Statement Highlights

Net income for the third quarter of 2018 was $13.1 million, or $0.34 diluted earnings per share, compared to $14.1 million, or $0.37 diluted earnings per share, for the second quarter of 2018 and $8.2 million, or $0.24 diluted earnings per share, for the third quarter of 2017. Net income excluding acquisition-related expenses, gain/loss on sale of investment securities, death benefit on bank owned life insurance and purchase accounting adjustments (“core net income”), for the third quarter of 2018 was $12.5 million, or $0.32 diluted earnings per share, compared to $12.7 million, or $0.33 diluted earnings per share, for the second quarter of 2018 and $9.2 million, or $0.27 diluted earnings per share, for the third quarter of 2017.

The decrease in net income and diluted earnings per share from the second quarter of 2018 to the third quarter of 2018 reflects increases in non-interest expense of $678,000 and provision for loan losses of $541,000 and decreases in acquisition-related purchase accounting adjustments (“PAUs”) of $845,000 and non-interest income of $246,000, partially offset by an increase in net interest income, excluding PAUs (“core net interest income”) of $1.1 million. The decrease in non-interest income during the third quarter was primarily due to a death benefit on bank owned life insurance of $154,000 recorded during the second quarter and $122,000 in losses on the sale of investment securities recorded during the third quarter.

The increase in net income and diluted earnings per share from the third quarter of 2017 to the same 2018 period reflects an increase in core net interest income of $5.8 million and an increase in non-interest income of $665,000, partially offset by increases in non-interest expense of $1.1 million and provision for loan losses of $466,000.

Net income for the nine months ended September 30, 2018 was $40.0 million, or $1.04 diluted earnings per share, compared to $25.5 million, or $0.75 diluted earnings per share, for the nine months ended September 30, 2017. Core net income for the nine months ended September 30, 2018 was $36.4 million, or $0.94 diluted earnings per share, compared to $25.4 million, or $0.75 diluted earnings per share, for the nine months ended September 30, 2017. This represents a 25.3% increase in core diluted earnings per share for the first nine months of 2018 compared to the same period in 2017.

The increase in net income and diluted earnings per share during the first nine months of 2018 when compared to the same period of 2017 reflects increases in core net interest income of $18.2 million and non-interest income of $2.1 million and a decrease in income tax expense of $1.2 million, partially offset by increases in non-interest expense of $7.9 million and provision for loan losses of $1.0 million.

Horizon’s net interest margin decreased to 3.67% for the third quarter of 2018 when compared to 3.78% for the second quarter of 2018 and 3.71% for the third quarter of 2017. The decrease in net interest margin from the second quarter of 2018 reflects an increase in the cost of interest-bearing liabilities of 15 basis points. The increase in the cost of interest-bearing liabilities was due to an increase in the cost of interest-bearing deposits of 17 basis points and borrowings of 11 basis points.

The decrease in net interest margin from the third quarter of 2017 reflects an increase in the cost of interest-bearing liabilities of 45 basis points, offset by an increase in the yield of interest-earning assets of 33 basis points. The increase in the cost of interest-bearing liabilities was due to an increase in the cost of interest-bearing deposits of 45 basis points and borrowings of 79 basis points. The increase in the yield of interest-earning assets was due to an increase in the yield on loans receivable of 25 basis points and taxable investment securities of 51 basis points, offset by a decrease in the yield on non-taxable investment securities of 25 basis points.

Net interest margin, excluding acquisition-related purchase accounting adjustments (“core net interest margin”), was 3.59% for the third quarter of 2018 compared to 3.60% for the prior quarter and 3.63% for the third quarter of 2017. Interest income from acquisition-related purchase accounting adjustments was $789,000, $1.6 million and $661,000 for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively.

Horizon’s net interest margin decreased to 3.74% for the nine months ended September 30, 2018 when compared to 3.77% for the nine months ended September 30, 2017. The cost of interest-bearing liabilities increased 36 basis points, primarily due to an increase in the cost of interest-bearing deposits of 30 basis points and borrowings of 65 basis points. The yield on interest-earning assets increased 28 basis points, primarily due to an increase in the yields earned on loans receivable of 23 basis points and taxable investment securities of 28 basis points, offset by a decrease in the yield earned on non-taxable securities of 39 basis points.

Core net interest margin for the nine months ended September 30, 2018 was 3.58% compared to 3.65% for the nine months ended September 30, 2017. Interest income from acquisition-related purchase accounting adjustments was $4.5 million and $2.6 million for the nine months ended September 30, 2018 and 2017, respectively.

Lending Activity

Total loans increased $124.3 million from $2.835 billion as of December 31, 2017 to $2.959 billion as of September 30, 2018 as consumer loans increased by $75.1 million, residential mortgage loans increased by $44.5 million and commercial loans increased by $28.9 million, offset by a decrease in mortgage warehouse loans of $23.1 million. Consumer loans increased at an annualized rate of 21.8%, primarily due to our experienced consumer loan team and increased focus on growing this portfolio. During the first nine months of 2018, Horizon originated approximately $257.0 million in commercial loans; however, only $163.0 million, or 63.4%, of the total originated loans were funded as of September 30, 2018. This growth was offset by approximately $134.5 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 September 30, 2018 generated $1.8 million in income from the gain on sale of mortgage loans, a decrease of $57,000 from the second quarter of 2018 and a decrease of $111,000 from the third quarter of 2017. Total origination volume for the third quarter of 2018, including loans placed into portfolio, totaled $100.6 million, representing a decrease of 7.7% from the second quarter of 2018 and an increase of 5.8% from the third quarter of 2017. Revenue derived from Horizon’s residential mortgage lending activities was only 6.5% and 6.3% of Horizon’s total revenue for the third quarter of 2018 and the nine months ended September 30, 2018, respectively.  

Purchase money mortgage originations during the third quarter of 2018 represented 80.0% of total originations compared to 85.6% of total originations during the second quarter of 2018 and 80.2% during the third quarter of 2017.

The provision for loan losses totaled $1.2 million for the third quarter of 2018 compared to $635,000 for the second quarter of 2018 and $710,000 for the third quarter of 2017. The increase in the provision for loan losses from the second quarter of 2018 and the third quarter of 2017 when compared to the third quarter of 2018 was due to an increase in specific allocations of approximately $485,000, along with 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 $2.4 million for the nine months ended September 30, 2018 compared to $1.4 million for the nine months ended September 30, 2017. The increase in the provision for loan losses from 2017 to 2018 was due to an increase in specific allocations of approximately $485,000, along with 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 increased to 0.60% as of September 30, 2018 from 0.58% at 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 September 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 1.06% as of September 30, 2018 compared to 1.23% as of December 31, 2017.

As of September 30, 2018, non-performing loans totaled $14.5 million, which reflects a 12 basis point decrease in non-performing loans to total loans, or a $1.9 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 $1.0 million, non-performing real estate loans decreased by $2.0 million and non-performing consumer loans decreased by $927,000. Other real estate owned and repossessed assets totaled $2.3 million as of September 30, 2018 which is an increase of $1.4 million from December 31, 2017. The majority of this increase was due to several bank owned properties acquired through acquisitions and listed for sale were 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 $678,000 higher in the third quarter of 2018 when compared to the second quarter of 2018. Salaries and employee benefits increased $534,000 primarily due to $376,000 in salary costs from one additional working day during the third quarter when compared to the second quarter and an increase in employee health costs of $266,000 during the third quarter. Loan expense increased $197,000 when compared to the second quarter primarily due to the increased volume in indirect lending and the timing of related origination and amortization costs. Data processing increased $152,000 from the second quarter primarily due to $70,000 of one-time costs and incremental costs from growth and new services. These increases were offset by decreases in other expense of $121,000 and other losses of $108,000 when comparing the third quarter of 2018 to the second quarter of 2018.

Total non-interest expense was $1.1 million higher during the third quarter of 2018 compared to the same period of 2017. The increase was primarily due to an increase in salaries and employee benefits of $1.4 million, loan expense of $507,000, data processing of $257,000, FDIC insurance expense of $126,000 and other losses of $103,000. The increase in salaries and employee benefits, data processing 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 third quarter of 2017. Other losses increased primarily due to write-downs on other bank owned properties and additional accruals for a potential loss on a fiduciary account recorded during the third quarter of 2018.

Total non-interest expense was $7.9 million higher for the nine months ended September 30, 2018 when compared to the nine months ended September 30, 2017. The increase was primarily due to increases in salaries and employee benefits of $5.4 million, net occupancy expenses of $933,000, loan expense of $932,000, other expense of $896,000, data processing of $751,000 and other losses of $390,000. The increase in salaries and employee benefits, net occupancy expense, other expense and data processing expense reflect overall company growth and recent acquisitions. Loan expense increased due to a higher level of loan originations and collection expenses during the nine months ended September 30, 2018 when compared to the same period of 2017. Offsetting these increases was a decrease of $1.3 million and $483,000 in outside services and consultants expense and professional fees, respectively, primarily due to a lack of acquisition-related expenses in 2018.

Income tax expense totaled $2.6 million for the third quarter of 2018, a decrease of $193,000 when compared to the second quarter of 2018 and an increase of $91,000 when compared to the third quarter of 2017. The decrease in income tax expense from the second quarter of 2018 was primarily due to a decrease in income before income tax of $1.2 million during the third quarter of 2018. The increase when comparing the third quarter of 2018 to the same prior year period was primarily due to an increase in income before income tax of $5.0 million which was offset by 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 $7.9 million for the nine months ended September 30, 2018, a decrease of $1.2 million when compared to the nine months ended September 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 $13.3 million when comparing the first nine 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.