BELLINGHAM, Wash., Oct. 18, 2007 (PRIME NEWSWIRE) -- Horizon Financial Corp. (Nasdaq:HRZB) today reported that continuing strength in the North Puget Sound economy produced strong loan growth and near record profits in the second quarter of fiscal 2008, ended September 30, 2007. Horizon earned $4.9 million, or $0.40 per diluted share, up 6% from $4.7 million, or $0.37 per diluted share for the same period a year ago. Horizon's earnings were down slightly from the record $5.0 million, or $0.41 per share, earned in 1Q08. In the first half of fiscal 2008, earnings grew 8% to $9.9 million, or $0.81 per share, compared to $9.2 million, or $0.74 per share in the first half of fiscal 2007.
Second Quarter Fiscal 2008 Highlights (for the quarter ended September 30, 2007 compared to September 30, 2006):
* Earnings per share increased 8% to $0.40, up from $0.37. * Net income grew 6% to $4.9 million from $4.7 million. * Tangible book value per share grew 10% to $10.50 from $9.54. * Profitability remained strong with excellent performance metrics: -- Return on average equity (ROE) was 15.49% compared to 16.02%. -- Return on average assets (ROA) was 1.48%, compared to 1.53%. -- The efficiency ratio was 47.91%, compared to 47.19%. * Asset quality continues to be superior: -- Non-performing assets were just 0.05% of total assets compared to 0.18% a year ago. -- Loan loss reserves are 1.48% of net loans receivable compared to 1.50%.
"Washington State's economy continues to out-perform the national average on many levels, including population growth, employment growth and home appreciation, although housing inventories are building and the length of time homes are on the market is expanding," stated V. Lawrence Evans, Chairman and CEO. "Overall state job growth continues to be strong with overall employment growing 3.7% year over year. Statewide unemployment in September fell to 4.3% (not seasonally adjusted) from 4.6% a year ago. Bellingham's unemployment was only 3.9%, one of the lowest rates we've seen in many years. Tacoma and Mt. Vernon-Anacortes also are showing excellent job growth, with unemployment dropping to 4.1% in September from 4.6% a year ago. Snohomish County saw unemployment fall to 4.2% from 4.6% and Pierce County saw unemployment fall to 4.6% from 4.8% a year ago."
"Closer to home, the City of Bellingham released the results of its survey of local businesses that shows a very high level of business confidence for revenue and employment growth and very strong satisfaction regarding the business climate in the city," Evans continued. "As a community bank that specializes in providing services to small businesses, we are headquartered in a market where the average business has just 16 employees and about half of all businesses employ 5 people or less. This report provides additional support for our continued optimism for future growth."
Conference Call Information
Management will host a conference call today, October 18, at 1:30 pm PDT (4:30 pm EDT) to discuss the second quarter and fiscal 2008 year-to-date results. The live call can be accessed by dialing (303) 262-2140. The replay, which will be available for a month beginning shortly after the call concludes, can be heard at (303) 590-3000 using access code 11097592#.
Review of Operations
In the second quarter of fiscal 2008, net revenues totaled $15.6 million, up 3% from $15.1 million in fiscal 1Q08 and 7% from $14.6 million in fiscal 2Q07. For the first half of fiscal 2008, revenue increased 7% to $30.7 million from $28.7 million in the year ago period. Interest income grew 13% in the quarter and 15% year-to-date, while interest expense increased 21% in the quarter and 27% year-to-date. Second quarter non-interest income grew 12% to $1.6 million compared to $1.4 million in the second quarter last year, primarily from growth in service fees. In the first six months of fiscal 2008, non-interest income grew 14% to $3.3 million from $2.9 million in the year-ago period. During the second quarter, growth in service fees helped offset lower gains on sale of loans. "While residential mortgage originations were strong in the quarter, we chose to retain certain short term mortgage loans in our portfolio rather than sell them into the secondary market, which impacted gain on sale of loans," said Dennis Joines, President and COO. "The housing market in our region continues to appreciate, although the length of time houses are on the market has lengthened to more normal levels than in the past few years, when homes sold very quickly."
Second quarter operating (non-interest) expense grew 8% to $7.5 million, from $6.9 million in the second quarter of fiscal 2007. Year-to-date operating expense increased 10% to $14.7 million from $13.4 million in the first half of fiscal 2007, reflecting new branch expansion over the year and overall growth of the franchise.
The net interest margin was 4.63% in the second quarter, up 2 basis points from the immediate prior quarter and off 14 basis points from the same period a year ago. The yield on earning assets was 8.60% in the second quarter of fiscal 2008, up from 8.53% in the preceding quarter and 8.35% in the second quarter of last year. In the second quarter, the cost of interest-bearing liabilities was 4.10%, up just 5 basis points from the preceding quarter and up 41 basis points from the year ago quarter. Year to date, the net interest margin was 4.62% compared to 4.80% in the like period a year ago. For the first six months of fiscal 2008, the yield on interest-earning assets was 8.56% compared to 8.21% in the first half of fiscal 2007. Year-to-date, the cost of interest-bearing liabilities was 4.08% compared to 3.53% in the year-ago period. The recent cut in the prime lending rate will impact revenues and net interest margin in the near term as approximately $674 million of our loan portfolio is tied to prime. However, this will be partially offset by an improvement in wholesale liability costs, with over $138 million in prime-based and short term borrowings. In addition, as our portfolio of CD's reprice, we will see benefits on the deposit cost side, with more than $350 million in fixed rate deposits maturing in the next six months.
Second quarter return on average equity was 15.49% compared to 16.08% in the linked quarter and 16.02% in the year ago period. Return on average assets was 1.48% in 2Q08, compared to 1.56% in 1Q08 and 1.53% in 2Q07. Year-to-date, return on average equity was 15.78% and the return on average assets was 1.52%, compared to 16.03% and 1.56% respectively, in the first half of fiscal 2007. The efficiency ratio was 47.91% in both the first and second quarters and the first half of fiscal 2008, compared to 47.19% in the 2Q07 and 46.74% in the first half of last year. "The numbers for the September 2007 quarter end included costs related to our new Puyallup office and home loan center, which were both opened this summer, contributing to the uptick in the efficiency ratio for this period," Joines said.
Balance Sheet Review
Total assets grew 9% to $1.35 billion at September 30, 2007, from $1.23 billion at September 30, 2006. The healthy small business community in western Washington continues to generate solid demand for commercial loans and for commercial real estate loans. Net loans increased 11% to $1.15 billion at the end of September 2007 compared to $1.04 billion a year earlier. The loan mix continues to reflect the business banking focus of the lending team, with commercial real estate loans representing 69% of net loans, commercial loans representing 14%, residential 12%, and consumer 5% of net loans. "We will continue to manage our loan growth to protect our profitability metrics and credit quality," Evans said.
"We regularly review our loan portfolio and our loan officers stay in close communication with our customers, particularly with our builders and developers," Evans continued. With the sales cycle lengthening in the new housing market, we anticipate that we may hold these loans a bit longer than in the recent past, but we do not foresee any unusual situations at this time."
Asset quality remains excellent with non-performing loans (NPLs) down to $6,000 at September 30, 2007, and non-performing assets (NPAs) of $731,000, or 0.05% of total assets. At the end of June 2007, NPLs were $157,000, or 0.01% of net loans, and NPAs were $882,000, representing 0.07% of assets. A year ago, both NPLs and NPAs were $2.2 million, or 0.21% of net loans and 0.18% of total assets.
"The performance of our loan portfolio reflects the discipline we adhere to in our lending business," said Rich Jacobson, EVP and CFO. "However, we continue to set aside adequate loan loss reserves, commensurate with the growth and risks in the loan portfolio." The provision for loan losses was $800,000 in 2Q08, $400,000 in 1Q08 and $700,000 in 2Q07. Year-to-date the provision for loan losses totaled $1.2 million compared to $1.4 million a year ago. Net charge-offs were $39,000 in 2Q08, $27,000 in 1Q08 and $43,000 in 2Q07. In the first half of fiscal 2008, net charge-offs totaled $66,000 compared to $73,000 a year ago. The reserve for loan losses totaled $17.0 million at September 30, 2007, representing 1.48% of net loans receivable compared to 1.50% at September 30, 2006.
Total deposits increased 8% to $998 million at the end of September 2007, compared to $922 million a year earlier. Transaction accounts grew 5% to $391 million, compared to $371 million a year ago, while time deposits increased 10% to $607 million versus $550 million at September 30, 2006. "Competitive pressures in the deposit market remain strong and we remain focused on building our core deposit base," Joines noted.
At September 30, 2007, Horizon's book value was $10.56 per share, compared to $9.61 a year earlier, and tangible book value was $10.50, up from $9.54 a year ago. In the first half of fiscal 2008, Horizon repurchased 147,200 shares at an average price of $21.23 per share.
Horizon Financial Corp. is a $1.3 billion, state-chartered bank holding company headquartered in Bellingham, Washington. Its primary subsidiary, Horizon Bank, is a state-chartered commercial bank that operates 19 full-service offices, four commercial loan centers and four real estate loan centers throughout Whatcom, Skagit, Snohomish and Pierce counties, Washington.
Safe Harbor Statement: Except for the historical information in this news release, the matters described herein are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. Such risks and uncertainties include: the ability to successfully expand existing relationships, deposit pricing and the ability to gather low-cost deposits, success in new markets and expansion plans, expense management and the efficiency ratio, expanding or maintaining the net interest margin, interest rate risk, loan quality and the loss levels expected on non-performing loans, the local and national economic environment, and other risks and uncertainties discussed from time to time in Horizon Financial's SEC filings. Accordingly, undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this release. Horizon undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.
Economic data was derived from reports by the Washington State Employment Security Department, Labor Market and Economic Analysis at www.workforceexplorer.com, The City of Bellingham 2007 Survey of Business Leaders at www.cob.org, and other real estate data at www.wcrer.wsu.edu.
CONSOLIDATED STATEMENTS OF INCOME (unaudited) Quarter Quarter Quarter (in 000s, Ended Three Ended One Ended except share Sept. 30, Month June 30, Year Sept. 30, data) 2007 Change 2007 Change 2006 --------------------------------------------------------------------- Interest income: Interest on loans $ 24,881 4% $ 23,884 13% $ 21,981 Interest and dividends on securities 1,011 0% 1,014 0% 1,012 ----------- ----------- ----------- Total interest income 25,892 4% 24,898 13% 22,993 Interest expense: Interest on deposits 9,818 4% 9,466 24% 7,932 Interest on borrowings 2,131 7% 1,991 11% 1,928 ----------- ----------- ----------- Total interest expense 11,949 4% 11,457 21% 9,860 ----------- ----------- ----------- Net interest income 13,943 4% 13,441 6% 13,133 Provision for loan losses 800 100% 400 14% 700 ----------- ----------- ----------- Net interest income after provision for loan losses 13,143 1% 13,041 6% 12,433 Non-interest income: Service fees 918 4% 881 17% 784 Net gain on sales of loans - servicing released 173 -45% 314 -16% 206 Net gain on sales of loans - servicing retained 5 -62% 13 25% 4 Net gain/ (loss) on sales of investment securities -- NA -- NA 14 Other 516 4% 495 20% 429 ----------- ----------- ----------- Total non-interest income 1,612 -5% 1,703 12% 1,437 Non-interest expense: Compensation and employee benefits 4,296 4% 4,132 5% 4,107 Building occupancy 1,177 9% 1,084 16% 1,014 Other expenses 1,532 -4% 1,593 12% 1,366 Data processing 238 -1% 241 12% 213 Advertising 209 2% 205 19% 176 ----------- ----------- ----------- Total non-interest expense 7,452 3% 7,255 8% 6,876 Income before provision for income taxes 7,303 -2% 7,489 4% 6,994 Provision for income taxes 2,390 -3% 2,473 2% 2,344 ----------- ----------- ----------- Net Income $ 4,913 -2% $ 5,016 6% $ 4,650 =========== =========== =========== Earnings per share: Basic earnings per share $ 0.40 -2% $ 0.41 5% $ 0.38 Diluted earnings per share $ 0.40 -2% $ 0.41 8% $ 0.37 Weighted average shares outstanding: Basic 12,155,532 -1% 12,227,372 -1% 12,285,606 Common stock equivalents 101,265 -10% 112,480 -20% 125,965 ----------- ----------- ----------- Diluted 12,256,797 -1% 12,339,852 -1% 12,411,571 =========== =========== =========== CONSOLIDATED STATEMENTS OF INCOME Six Months Six Months Ended Ended (unaudited) (in 000s, Sept. 30, Sept. 30, except per share data) 2007 Change 2006 --------------------------------------------------------------------- Interest income: Interest on loans $ 48,765 16% $ 42,152 Interest and dividends on securities 2,026 0% 2,024 ----------- ----------- Total interest income 50,791 15% 44,176 Interest expense: Interest on deposits 19,285 33% 14,524 Interest on borrowings 4,122 7% 3,837 ----------- ----------- Total interest expense 23,407 27% 18,361 ----------- ----------- Net interest income 27,384 6% 25,815 Provision for loan losses 1,200 -14% 1,400 ----------- ----------- Net interest income after provision for loan losses 26,184 7% 24,415 Non-interest income: Service fees 1,799 9% 1,651 Net gain on sales of loans - servicing released 487 13% 432 Net gain on sales of loans - servicing retained 17 113% 8 Net gain on sales of investment securities -- -100% 19 Other 1,012 26% 801 ----------- ----------- Total non-interest income 3,315 14% 2,911 Non-interest expense: Compensation and employee benefits 8,427 6% 7,974 Building occupancy 2,262 15% 1,968 Other expenses 3,124 16% 2,704 Data processing 479 11% 430 Advertising 415 18% 351 ----------- ----------- Total non-interest expense 14,707 10% 13,427 Income before provision for income taxes 14,792 6% 13,899 Provision for income taxes 4,863 4% 4,667 ----------- ----------- Net Income $ 9,929 8% $ 9,232 =========== =========== Earnings per share: Basic earnings per share $ 0.81 8% $ 0.75 Diluted EPS $ 0.81 9% $ 0.74 Weighted average shares outstanding: Basic 12,191,256 -1% 12,312,727 Common stock equivalents 108,149 -7% 116,590 ----------- ----------- Diluted 12,299,405 -1% 12,429,317 =========== =========== CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited) (in 000s, Three One except share Sept. 30, Month June 30, Year Sept. 30, data) 2007 Change 2007 Change 2006 --------------------------------------------------------------------- Assets: Cash and due from banks $ 18,457 -47% $ 35,000 -35% $ 28,341 Interest- bearing deposits 6,836 -21% 8,665 119% 3,122 Investment securities - available for sale 51,652 -4% 54,041 -9% 56,889 Investment securities - held to maturity 370 0% 370 0% 370 Mortgage-backed securities - available for sale 31,865 5% 30,374 18% 27,031 Mortgage-backed securities - held to maturity 78 -34% 118 -73% 288 Federal Home Loan Bank stock 7,247 0% 7,247 0% 7,247 Gross loans receivable 1,163,436 6% 1,100,810 11% 1,052,218 Reserve for loan losses (17,023) 5% (16,262) 10% (15,511) ----------- ----------- ----------- Net loans receivable 1,146,413 6% 1,084,548 11% 1,036,707 Loans held for sale 1,571 -52% 3,240 -13% 1,806 Investment in real estate in a joint venture 17,406 1% 17,302 2% 17,028 Accrued interest and dividends receivable 7,691 8% 7,134 25% 6,159 Property and equipment, net 28,551 0% 28,673 5% 27,284 Net deferred income tax assets 3,683 -1% 3,736 78% 2,069 Income tax receivable 794 NA -- 66% 477 Other real estate owned 725 0% 725 NA 0 Other assets 22,792 2% 22,368 24% 18,380 ----------- ----------- ----------- Total assets $ 1,346,131 3% $ 1,303,541 9% $ 1,233,198 =========== =========== =========== Liabilities: Deposits $ 997,555 1% $ 987,704 8% $ 921,512 Other borrowed funds 189,738 21% 157,100 16% 163,973 Borrowing related to investment in real estate in a joint venture 21,419 4% 20,689 12% 19,193 Accounts payable and other liabilities 6,955 -8% 7,588 -16% 8,315 Advances by borrowers for taxes and insurance 417 113% 196 -3% 430 Deferred compensation 1,982 -1% 2,001 3% 1,925 Federal income tax payable -- -100% 2,628 0% -- ----------- ----------- ----------- Total liabil- ities $ 1,218,066 3% $ 1,177,906 9% $ 1,115,348 Stockholders' equity: Serial preferred stock, $1.00 par value; 10,000,000 shares authorized; none issued or outstanding -- -- -- Common stock, $1.00 par value; 30,000,000 shares authorized; 12,123,595, 12,186,224, and 12,268,054 shares outstand- ing $ 12,124 -1% $ 12,186 -1% 12,268 Paid-in capital 51,199 0% 51,283 0% 51,318 Retained earnings 61,207 4% 58,850 21% 50,557 Accumulated other comprehensive income 3,535 7% 3,316 -5% 3,707 ----------- ----------- ----------- Total stockholders' equity 128,065 2% 125,635 9% 117,850 ----------- ----------- ----------- Total liabilities and stockholders' equity $ 1,346,131 3% $ 1,303,541 9% $ 1,233,198 =========== =========== =========== Intangible assets: Goodwill $ 545 0% $ 545 0% $ 545 Mortgage servicing asset 233 -4% 242 -3% 240 ----------- ----------- ----------- Total intangible assets $ 778 -1% $ 787 -1% $ 785 =========== =========== =========== LOANS (unaudited) Sept. 30, June 30, Sept. 30, (in 000s) 2007 2007 2006 --------------------------------------------------------------------- 1-4 Mortgage 1-4 Family residential $ 159,824 $ 148,692 $ 151,720 1-4 Family construction 34,032 27,963 24,268 Participations sold (50,655) (52,686) (53,186) ---------- ---------- ---------- Subtotal 143,201 123,969 122,802 Construction and land development 458,838 422,634 344,193 Multi family residential 46,631 48,148 68,093 Commercial real estate 296,453 291,705 309,675 Commercial loans 165,356 164,405 154,490 Home equity secured 44,971 43,144 46,900 Other consumer loans 7,986 6,805 6,065 ---------- ---------- ---------- Subtotal 1,020,235 976,841 929,416 ---------- ---------- ---------- Subtotal 1,163,436 1,100,810 1,052,218 Less: Reserve for loan losses (17,023) (16,262) (15,511) ---------- ---------- ---------- Net loans receivable $1,146,413 $1,084,548 $1,036,707 ========== ========== ========== Net residential loans $ 142,031 12% $ 122,950 11% 121,785 Net commercial loans 162,402 14% 161,452 15% 151,689 Net commercial real estate loans 789,882 69% 750,995 69% 711,095 Net consumer loans 52,098 5% 49,151 5% 52,138 ----------------- ----------------- ---------- $1,146,413 100% $1,084,548 100% $1,036,707 ================= ================= ========== DEPOSITS (unaudited) Sept. 30, June 30, Sept. 30, (in 000s) 2007 2007 2006 --------------------------------------------------------------------- Demand Deposits Savings $ 19,183 2% $ 19,665 2% $ 24,066 Checking 77,341 8% 80,358 8% 76,850 Checking - non interest bearing 76,260 7% 89,145 9% 94,028 Money market 217,790 22% 199,656 20% 176,384 ----------------- ----------------- ---------- Subtotal 390,574 39% 388,824 39% 371,328 Certificates of Deposit Under $100,000 277,848 28% 282,726 29% 262,714 $100,000 and above 260,534 26% 247,888 25% 225,963 Brokered Certificates of Deposit 68,599 7% 68,266 7% 61,507 ----------------- ----------------- ---------- Total Certificates of Deposit 606,981 61% 598,880 61% 550,184 ----------------- ----------------- ---------- Total $ 997,555 100% $ 987,704 100% $ 921,512 ================= ================= ========== WEIGHTED AVERAGE INTEREST RATES: Six Six Quarter Quarter Quarter Months Months Ended Ended Ended Ended Ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, (unaudited) 2007 2007 2006 2007 2006 ------------------------------------------------ ---------------- Yield on loans 8.93% 8.88% 8.72% 8.90% 8.58% Yield on investments 4.47% 4.46% 4.35% 4.46% 4.32% ----- ----- ----- ----- ----- Yield on interest- earning assets 8.60% 8.53% 8.35% 8.56% 8.21% Cost of deposits 3.96% 3.90% 3.50% 3.93% 3.32% Cost of borrowings 4.93% 4.95% 4.78% 4.94% 4.62% ----- ----- ----- ----- ----- Cost of interest- bearing liabilities 4.10% 4.05% 3.69% 4.08% 3.53% AVERAGE BALANCES Quarter Quarter Quarter Six Months Six Months Ended Ended Ended Ended Ended (unaudited) Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, (in 000s) 2007 2007 2006 2007 2006 --------------------------------------------------------------------- Loans $1,114,386 $1,076,239 $1,008,100 $1,095,313 $ 982,481 Invest- ments 90,469 91,004 93,101 90,736 93,827 ---------- ---------- ---------- ---------- ---------- Total interest- earning assets 1,204,855 1,167,243 1,101,201 1,186,049 1,076,308 Deposits 992,531 970,704 906,228 981,618 874,962 Borrowings 172,738 160,819 161,466 166,779 166,065 ---------- ---------- ---------- ---------- ---------- Total interest- bearing liabil- ities $1,165,269 $1,131,523 1,067,694 1,148,397 1,041,027 Average assets $1,324,836 $1,286,934 $1,211,989 $1,306,667 $1,180,235 Average stockholders' equity $ 126,850 $ 124,744 $ 116,125 $ 125,852 $ 115,191 CONSOLIDATED FINANCIAL RATIOS Quarter Quarter Quarter Six Months Six Months Ended Ended Ended Ended Ended Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, (unaudited) 2007 2007 2006 2007 2006 --------------------------------------------------------------------- Return on average assets 1.48% 1.56% 1.53% 1.52% 1.56% Return on average equity 15.49% 16.08% 16.02% 15.78% 16.03% Efficiency ratio 47.91% 47.91% 47.19% 47.91% 46.74% Net interest spread 4.49% 4.48% 4.66% 4.49% 4.68% Net interest margin 4.63% 4.61% 4.77% 4.62% 4.80% Equity-to- assets ratio 9.51% 9.64% 9.56% Equity-to- deposits ratio 12.84% 12.72% 12.79% Book value per share $ 10.56 $ 10.31 $ 9.61 Tangible book value per share $ 10.50 $ 10.24 $ 9.54 RESERVE FOR LOAN LOSSES Quarter Quarter Quarter Six Months Six Months (unaudited) Ended Ended Ended Ended Ended (dollars Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30, in 000s) 2007 2007 2006 2007 2006 --------------------------------------------------------------------- Balance at beginning of period $ 16,262 $ 15,889 $ 14,854 $ 15,889 $ 14,184 Provision for loan losses 800 400 700 1,200 1,400 Charge offs - net of recoveries (39) (27) (43) (66) (73) ---------- ---------- ---------- ---------- ---------- Balance at end of period $ 17,023 $ 16,262 $ 15,511 $ 17,023 $15,511 Reserves/ Loans Receivable 1.48% 1.50% 1.50% NON-PERFORMING ASSETS (unaudited) (dollars Sept. 30, June 30, Sept. 30, in 000s) 2007 2007 2006 --------------------------------------------- Accruing loans - 90 days past due $ -- $ -- $ 611 Non-accrual loans 6 157 1,557 Restructured loans -- -- -- ---------- ---------- ---------- Total non-performing loans $ 6 $ 157 2,168 Total non-performing loans/net loans 0.00% 0.01% 0.21% Real estate owned $ 725 $ 725 -- ---------- ---------- ---------- Total non-performing assets $ 731 $ 882 $ 2,168 Total non-performing assets/ total assets 0.05% 0.07% 0.18%