Market Overview

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

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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 30th 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.

 
Non-GAAP Reconciliation of Net Income and Diluted Earnings per Share
(Dollars in Thousands, Except per Share Data, Unaudited)
  Three Months Ended   Six Months Ended
  June 30   March 31   June 30   June 30   June 30
  2018   2018   2017   2018   2017
Non-GAAP Reconciliation of Net Income                  
Net income as reported $ 14,115     $ 12,804     $ 9,072     $ 26,919     $ 17,296  
Merger expenses   -       -       200       -       200  
Tax effect   -       -       (70 )     -       (70 )
Net income excluding merger expenses   14,115       12,804       9,202       26,919       17,426  
                   
Gain on sale of investment securities   -       (11 )     3       (11 )     (32 )
Tax effect   -       2       (1 )     2       11  
Net income excluding gain on sale of investment securities   14,115       12,795       9,204       26,910       17,405  
                   
Death benefit on bank owned life insurance ("BOLI")   (154 )     -       -       (154 )     -  
Tax effect   32       -       -       32       -  
Net income excluding death benefit on BOLI   13,993       12,795       9,204       26,788       17,405  
                   
Acquisition-related purchase accounting adjustments ("PAUs")   (1,634 )     (2,037 )     (939 )     (3,671 )     (1,955 )
Tax effect   343       428       329       771       684  
Core Net Income $ 12,702     $ 11,186     $ 8,594     $ 23,888     $ 16,134  
                   
Non-GAAP Reconciliation of Diluted Earnings per Share                  
Diluted earnings per share ("EPS") as reported $ 0.37     $ 0.33     $ 0.27     $ 0.70     $ 0.51  
Merger expenses   -       -       0.01       -       0.01  
Tax effect   -       -       -       -       -  
Diluted EPS excluding merger expenses   0.37       0.33       0.28       0.70       0.52  
                   
Gain on sale of investment securities   -       -       -       -       -  
Tax effect   -       -       -       -       -  
Diluted EPS excluding gain on sale of investment securities   0.37       0.33       0.28       0.70       0.52  
                   
Death benefit on BOLI   -       -       -       -       -  
Tax effect   -       -       -       -       -  
Diluted EPS excluding death benefit on BOLI   0.37       0.33       0.28       0.70       0.52  
                   
Acquisition-related PAUs   (0.04 )     (0.05 )     (0.03 )     (0.10 )     (0.06 )
Tax effect   -       0.01       0.01       0.02       0.01  
Core Diluted EPS $ 0.33     $ 0.29     $ 0.26     $ 0.62     $ 0.47  
                   

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.

 
Non-GAAP Reconciliation of Net Interest Margin
(Dollars in Thousands, Unaudited)
  Three Months Ended   Six Months Ended
  June 30   March 31   June 30   June 30   June 30
  2018   2018   2017   2018   2017
Non-GAAP Reconciliation of Net Interest Margin                  
Net interest income as reported $ 33,550     $ 33,411     $ 27,198     $ 66,961     $ 52,766  
                   
Average interest-earning assets   3,638,801       3,580,143       2,943,627       3,600,676       2,870,884  
                   
Net interest income as a percentage of average interest-earning assets
  ("Net Interest Margin")
  3.78 %     3.81 %     3.84 %     3.81 %     3.81 %
       
Acquisition-related purchase accounting adjustments ("PAUs")   (1,634 )     (2,037 )     (939 )     (3,671 )     (1,955 )
                   
Core net interest income   31,916       31,374       26,259       63,290       50,811  
                   
Core net interest margin   3.60 %     3.55 %     3.71 %     3.61 %     3.67 %
                                       

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. 

 
Loan Growth by Type, Excluding Acquired Loans
(Dollars in Thousands, Unaudited)
   
  June 30   December 31   Amount   Percent
  2018   2017   Change   Change
Commercial $ 1,672,998   $ 1,669,728   $ 3,270     0.2 %
Residential mortgage   634,636     606,760     27,876     4.6 %
Consumer   507,866     460,999     46,867     10.2 %
Subtotal   2,815,500     2,737,487     78,013     2.8 %
Held for sale loans   3,000     3,094     (94 )   -3.0 %
Mortgage warehouse loans   109,016     94,508     14,508     15.4 %
Total loans $ 2,927,516   $ 2,835,089   $ 92,427     3.3 %
                         

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.

 
Non-GAAP Allowance for Loan and Lease Loss Detail
As of June 30, 2018
(Dollars in Thousands, Unaudited)
                   
  Pre-discount
Loan
Balance
  Allowance
for Loan
Losses
(ALLL)
  Loan
Discount
  ALLL
+
Loan
Discount
  Loans, net   ALLL/
Pre-discount
Loan Balance
  Loan
Discount/
Pre-discount
Loan Balance
  ALLL + Loan
Discount/
Pre-discount
Loan Balance
Horizon Legacy $ 2,280,089   $ 17,071   N/A   $ 17,071   $ 2,263,018   0.75 %   0.00 %   0.75 %
Heartland   10,290     -     725     725     9,565   0.00 %   7.05 %   7.05 %
Summit   31,357     -     1,858     1,858     29,499   0.00 %   5.93 %   5.93 %
Peoples   99,586     -     2,259     2,259     97,327   0.00 %   2.27 %   2.27 %
Kosciusko   46,070     -     700     700     45,370   0.00 %   1.52 %   1.52 %
LaPorte   108,429     -     3,283     3,283     105,146   0.00 %   3.03 %   3.03 %
CNB   5,293     -     144     144     5,149   0.00 %   2.72 %   2.72 %
Lafayette   112,352     -     2,036     2,036     110,316   0.00 %   1.81 %   1.81 %
Wolverine   234,050     -     3,447     3,447     230,603   0.00 %   1.47 %   1.47 %
Total $ 2,927,516   $ 17,071   $ 14,452   $ 31,523   $ 2,895,993   0.58 %   0.49 %   1.08 %
                       

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.

                   
Non-GAAP Reconciliation of Tangible Stockholders' Equity and Tangible Book Value per Share
(Dollars in Thousands Except per Share Data, Unaudited)
                 
  June 30   March 31   December 31   September 30   June 30
  2018   2018   2017   2017   2017
Total stockholders' equity $   470,535   $   460,416   $   457,078   $   392,055   $   357,259
Less: Intangible assets     131,239       131,724       132,282       103,244       86,726
Total tangible stockholders' equity $   339,296   $   328,692   $   324,796   $   288,811   $   270,533
                   
Common shares outstanding     38,362,640       38,332,853       38,294,729       34,988,189       33,264,698
                   
Tangible book value per common share $   8.84   $   8.57   $   8.48   $   8.25   $   8.13

 

 
Non-GAAP Reconciliation of Return on Average Assets and Return on Average Common Equity
(Dollars in Thousands, Unaudited)
  Three Months Ended   Six Months Ended
  June 30   March 31   June 30   June 30   June 30
  2018   2017   2017   2018   2017
Non-GAAP Reconciliation of Return on Average Assets                  
Average Assets $ 4,017,551     $ 3,942,837     $ 3,249,851     $ 3,980,864     $ 3,177,134  
                   
Return on average assets ("ROAA") as reported   1.41 %     1.32 %     1.12 %     1.36 %     1.10 %
Merger expenses   0.00 %     0.00 %     0.02 %     0.00 %     0.01 %
Tax effect   0.00 %     0.00 %     -0.01 %     0.00 %     0.00 %
ROAA excluding merger expenses   1.41 %     1.32 %     1.13 %     1.36 %     1.11 %
                   
Gain on sale of investment securities   0.00 %     0.00 %     0.00 %     0.00 %     0.00 %
Tax effect   0.00 %     0.00 %     0.00 %     0.00 %     0.00 %
ROAA excluding gain on sale of investment securities   1.41 %     1.32 %     1.13 %     1.36 %     1.11 %
                   
Death benefit on bank owned life insurance ("BOLI")   -0.02 %     0.00 %     0.00 %     -0.01 %     0.00 %
Tax effect   0.00 %     0.00 %     0.00 %     0.00 %     0.00 %
ROAA excluding death benefit on BOLI   1.39 %     1.32 %     1.13 %     1.35 %     1.11 %
                   
Acquisition-related purchase accounting adjustments ("PAUs")   -0.16 %     -0.21 %     -0.12 %     -0.19 %     -0.12 %
Tax effect   0.03 %     0.04 %     0.04 %     0.04 %     0.04 %
Core ROAA   1.26 %     1.15 %     1.05 %     1.20 %     1.03 %
                   
Non-GAAP Reconciliation of Return on Average Common Equity                  
Average Common Equity $ 465,968     $ 460,076     $ 355,435     $ 463,156     $ 350,305  
                   
Return on average common equity ("ROACE") as reported   12.15 %     11.29 %     10.24 %     11.72 %     9.96 %
Merger expenses   0.00 %     0.00 %     0.23 %     0.00 %     0.12 %
Tax effect   0.00 %     0.00 %     -0.08 %     0.00 %     -0.04 %
ROACE excluding merger expenses   12.15 %     11.29 %     10.39 %     11.72 %     10.04 %
                   
Gain on sale of investment securities   0.00 %     -0.01 %     0.00 %     0.00 %     -0.02 %
Tax effect   0.00 %     0.00 %     0.00 %     0.00 %     0.01 %
ROACE excluding gain on sale of investment securities   12.15 %     11.28 %     10.39 %     11.72 %     10.03 %
                   
Death benefit on bank owned life insurance ("BOLI")   -0.13 %     0.00 %     0.00 %     -0.07 %     0.00 %
Tax effect   0.03 %     0.00 %     0.00 %     0.01 %     0.00 %
ROACE excluding death benefit on BOLI   12.05 %     11.28 %     10.39 %     11.66 %     10.03 %
                   
Acquisition-related purchase accounting adjustments ("PAUs")   -1.41 %     -1.80 %     -1.06 %     -1.60 %     -1.13 %
Tax effect   0.30 %     0.38 %     0.37 %     0.34 %     0.39 %
Core ROACE   10.94 %     9.86 %     9.70 %     10.40 %     9.29 %
                   

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

                 
HORIZON BANCORP, INC.
Financial Highlights
(Dollars in thousands except share and per share data and ratios, Unaudited)
                 
  June 30   March 31   December 31   September 30   June 30
  2018   2018   2017   2017   2017
Balance sheet:                  
Total assets $ 4,076,611     $ 3,969,750     $ 3,964,303     $ 3,519,501     $ 3,321,178  
Investment securities   735,962       714,425       710,113       708,449       704,525  
Commercial loans   1,672,998       1,656,374       1,669,728       1,322,953       1,190,502  
Mortgage warehouse loans   109,016       101,299       94,508       95,483       123,757  
Residential mortgage loans   634,636       618,131       606,760       571,062       549,997  
Consumer loans   507,866       480,989       460,999       436,327       403,468  
Earnings assets   3,681,583       3,591,296       3,563,307       3,153,230       2,990,924  
Non-interest bearing deposit accounts   615,018       602,175       601,805       563,536       508,305  
Interest bearing transaction accounts   1,644,758       1,619,859       1,712,246       1,536,169       1,401,407  
Time deposits   756,387       711,642       566,952       508,570       452,208  
Borrowings   524,846       520,300       564,157       458,152       485,304  
Subordinated debentures   37,745       37,699       37,653       37,607       37,562  
Total stockholders' equity   470,535       460,416       457,078       392,055       357,259  
                 
Income statement: Three months ended
Net interest income $ 33,550     $ 33,411     $ 31,455     $ 27,879     $ 27,198  
Provision for loan losses   635       567       1,100       710       330  
Non-interest income   8,932       8,318       9,344       8,021       8,212  
Non-interest expenses   24,942       25,837       26,291       24,513       22,488  
Income tax expense   2,790       2,521       5,758       2,506       3,520  
Net income $ 14,115     $ 12,804     $ 7,650     $ 8,171     $ 9,072  
                 
Per share data:(1)                  
Basic earnings per share $ 0.37     $ 0.33     $ 0.20     $ 0.24     $ 0.27  
Diluted earnings per share   0.37       0.33       0.20       0.24       0.27  
Cash dividends declared per common share   0.10       0.10       0.09       0.09       0.09  
Book value per common share   12.27       12.01       11.93       11.21       10.74  
Tangible book value per common share   8.84       8.57       8.48       8.25       8.13  
Market value - high   21.94       20.59       19.47       19.45       18.33  
Market value - low $ 19.17     $ 17.87     $ 17.33     $ 16.87     $ 16.49  
Weighted average shares outstanding - Basic   38,347,612       38,306,395       37,711,200       33,870,240       33,264,697  
Weighted average shares outstanding - Diluted   38,519,689       38,468,811       37,897,012       34,072,909       33,483,585  
                 
Key ratios:                  
Return on average assets   1.41 %     1.32 %     0.79 %     0.96 %     1.12 %
Return on average common stockholders' equity   12.15       11.29       6.75       8.92       10.24  
Net interest margin   3.78       3.81       3.71       3.71       3.84  
Loan loss reserve to total loans   0.58       0.58       0.58       0.64       0.66  
Average equity to average assets   11.60       11.67       11.70       10.74       10.94  
Bank only capital ratios:                  
Tier 1 capital to average assets   9.88       9.66       9.89       9.90       9.77  
Tier 1 capital to risk weighted assets   12.18       12.32       12.29       12.33       12.69  
Total capital to risk weighted assets   12.73       12.87       12.85       12.93       13.31  
                 
Loan data:                  
Substandard loans $ 40,941     $ 43,035     $ 46,162     $ 36,883     $ 34,870  
30 to 89 days delinquent   3,978       8,932       9,329       6,284       4,555  
                   
90 days and greater delinquent - accruing interest $ 49     $ 30     $ 167     $ 162     $ 160  
Trouble debt restructures - accruing interest   1,911       1,899       1,958       2,015       1,924  
Trouble debt restructures - non-accrual   894       1,090       1,013       1,192       668  
Non-accrual loans   12,555       12,062       13,276       9,065       8,811  
Total non-performing loans $ 15,409     $ 15,081     $ 16,414     $ 12,434     $ 11,563  
Non-performing loans to total loans   0.53 %     0.53 %     0.58 %     0.51 %     0.51 %
                 
(1)Adjusted for 3:2 stock split on June 15, 2018                  
                   

 

     
HORIZON BANCORP, INC.
Financial Highlights
(Dollars in thousands except share and per share data and ratios, Unaudited)
     
  June 30   March 31
  2018   2018
Balance sheet:      
Total assets $ 4,076,611     $ 3,321,178  
Investment securities   735,962       704,525  
Commercial loans   1,672,998       1,190,502  
Mortgage warehouse loans   109,016       123,757  
Residential mortgage loans   634,636       549,997  
Consumer loans   507,866       403,468  
Earnings assets   3,681,583       2,990,924  
Non-interest bearing deposit accounts   615,018       508,305  
Interest bearing transaction accounts   1,644,758       1,401,407  
Time deposits   756,387       452,208  
Borrowings   524,846       485,304  
Subordinated debentures   37,745       37,562  
Total stockholders' equity   470,535       357,259  
     
  Six months ended
Income statement:      
Net interest income $ 66,961     $ 52,766  
Provision for loan losses   1,202       660  
Non-interest income   17,250       15,771  
Non-interest expenses   50,779       44,009  
Income tax expense   5,311       6,572  
Net income $ 26,919     $ 17,296  
     
Per share data:(1)      
Basic earnings per share $ 0.70     $ 0.52  
Diluted earnings per share   0.70       0.51  
Cash dividends declared per common share   0.20       0.16  
Book value per common share   12.27       10.74  
Tangible book value per common share   8.84       8.13  
Market value - high   21.94       18.73  
Market value - low $ 17.87     $ 16.49  
Weighted average shares outstanding - Basic   38,327,118       33,263,997  
Weighted average shares outstanding - Diluted   38,484,588       33,486,780  
     
Key ratios:      
Return on average assets   1.36 %     1.10 %
Return on average common stockholders' equity   11.72       9.96  
Net interest margin   3.81       3.81  
Loan loss reserve to total loans   0.58       0.66  
Average equity to average assets   11.63       11.03  
Bank only capital ratios:      
Tier 1 capital to average assets   9.88       9.77  
Tier 1 capital to risk weighted assets   12.18       12.69  
Total capital to risk weighted assets   12.73       13.31  
     
Loan data:      
Substandard loans $ 40,941     $ 34,870  
30 to 89 days delinquent   3,978       4,555  
       
90 days and greater delinquent - accruing interest $ 49     $ 160  
Trouble debt restructures - accruing interest   1,911       1,924  
Trouble debt restructures - non-accrual   894       668  
Non-accrual loans   12,555       8,811  
Total non-performing loans $ 15,409     $ 11,563  
Non-performing loans to total loans   0.53 %     0.51 %
     
(1)Adjusted for 3:2 stock split on June 15, 2018      
       

 

 
HORIZON BANCORP, INC.
 
Allocation of the Allowance for Loan and Lease Losses
(Dollars in Thousands, Unaudited)
                 
  June 30   March 31   December 31   September 30   June 30
  2018   2018   2017   2017   2017
Commercial $    8,865     $ 7,840     $ 9,093     $ 8,335     $ 8,056  
Real estate     1,761       1,930       2,188       2,129       1,750  
Mortgage warehousing     1,084       1,030       1,030       1,048       1,090  
Consumer     5,361       5,674       4,083       4,074       4,131  
Total $    17,071     $ 16,474     $ 16,394     $ 15,586     $ 15,027  
                 
                 
Net Charge-Offs (Recoveries)
(Dollars in Thousands, Unaudited)
                 
  Three Months Ended
  June 30   March 31   December 31   September 30   June 30
  2018   2018   2017     2017     2017
Commercial $    (40 )   $ (38 )   $ 84     $ 158     $ 219  
Real estate     (2 )     6       (9 )     24       (8 )
Mortgage warehousing     -       -       -       -       -  
Consumer     80       519       217       (31 )     146  
Total $    38     $ 487     $ 292     $ 151     $ 357  
Percent of net charge-offs to average
  loans outstanding for the period
  0.00 %     0.01 %     0.01 %     0.01 %     0.02 %
                 
                 
Total Non-performing Loans
(Dollars in Thousands, Unaudited)
                 
  June 30   March 31   December 31   September 30   June 30
  2018   2018   2017   2017   2017
Commercial $    8,987     $ 6,778     $ 7,354     $ 3,582     $ 3,033  
Real estate     3,915       5,276       5,716       5,545       5,285  
Mortgage warehousing     -       -       -       -       -  
Consumer     2,507       3,027       3,344       3,307       3,245  
Total $    15,409     $ 15,081     $ 16,414     $ 12,434     $ 11,563  
Non-performing loans to total loans   0.53 %     0.53 %     0.58 %     0.51 %     0.51 %
                 
                 
Other Real Estate Owned and Repossessed Assets
(Dollars in Thousands, Unaudited)
                 
  June 30   March 31   December 31   September 30   June 30
  2018   2018   2017   2017   2017
Commercial $    2,628     $ 547     $ 578     $ 324     $ 409  
Real estate     302       281       200       1,443       1,805  
Mortgage warehousing     -       -       -       -       -  
Consumer     62       42       60       26       21  
Total $    2,992     $ 870     $ 838     $ 1,793     $ 2,235  
                 

 

 
HORIZON BANCORP, INC.
Average Balance Sheets
(Dollar Amounts in Thousands, Unaudited)
 
  Three Months Ended   Three Months Ended
  June 30, 2018   June 30, 2017
  Average
Balance
  Interest   Average
Rate
  Average
Balance
  Interest   Average
Rate
  Assets                                      
  Interest-earning assets  
  Federal funds sold $ 3,367     $ 15   1.79 %   $ 1,728     $ 6   1.39 %
  Interest-earning deposits   25,946       107   1.65 %     27,677       83   1.20 %
  Investment securities - taxable   416,182       2,441   2.35 %     423,815       2,155   2.04 %
  Investment securities - non-taxable(1)   307,219       1,870   3.15 %     290,494       1,766   3.40 %
  Loans receivable(2)(3)   2,886,087       36,308   5.08 %     2,199,913       26,795   4.94 %
  Total interest-earning assets(1)   3,638,801       40,741   4.57 %     2,943,627       30,805   4.33 %
 
  Non-interest-earning assets  
  Cash and due from banks   44,213       42,331    
  Allowance for loan losses   (16,617 )     (15,131 )  
  Other assets   351,154       279,024    
                                           
    Total average assets $ 4,017,551                 $ 3,249,851              
                                           
    Liabilities and Stockholders' Equity                                      
  Interest-bearing liabilities  
  Interest-bearing deposits $ 2,403,780     $ 3,920   0.65 %   $ 1,980,025     $ 1,721   0.35 %
  Borrowings   489,608       2,679   2.19 %     359,462       1,338   1.49 %
  Subordinated debentures   36,525       592   6.50 %     36,340       548   6.05 %
  Total interest-bearing liabilities   2,929,913       7,191   0.98 %     2,375,827       3,607   0.61 %
 
  Non-interest-bearing liabilities  
  Demand deposits   605,188       499,446    
  Accrued interest payable and other liabilities   16,482       19,143    
  Stockholders' equity   465,968       355,435    
                                           
  Total average liabilities and stockholders' equity $ 4,017,551     $ 3,249,851    
                                           
  Net interest income/spread   $ 33,550   3.59 %   $ 27,198   3.73 %
  Net interest income as a percentage of average
  interest-earning assets(1)
  3.78 %   3.84 %
 
(1 ) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2 ) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3 ) Non-accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.

 

 
HORIZON BANCORP, INC.
Average Balance Sheets
(Dollar Amounts in Thousands, Unaudited)
 
  Six Months Ended   Six Months Ended
  June 30, 2018   June 30, 2017
  Average
Balance
  Interest   Average
Rate
  Average
Balance
  Interest   Average
Rate
  Assets                                      
  Interest-earning assets  
  Federal funds sold $ 3,560     $ 29   1.64 %   $ 2,377     $ 11   0.93 %
  Interest-earning deposits   24,749       197   1.61 %     26,220       152   1.17 %
  Investment securities - taxable   409,669       4,767   2.35 %     411,417       4,487   2.20 %
  Investment securities - non-taxable(1)   307,462       3,735   3.13 %     280,563       3,403   3.40 %
  Loans receivable(2)(3)   2,855,236       71,439   5.05 %     2,150,307       51,586   4.85 %
  Total interest-earning assets(1)   3,600,676       80,167   4.55 %     2,870,884       59,639   4.29 %
 
  Non-interest-earning assets  
  Cash and due from banks   43,984       41,788    
  Allowance for loan losses   (16,480 )     (15,035 )  
  Other assets   352,684       279,497    
                                           
  Total average assets $ 3,980,864     $ 3,177,134    
 
  Liabilities and Stockholders' Equity  
  Interest-bearing liabilities  
  Interest-bearing deposits $ 2,354,578     $ 6,791   0.58 %   $ 1,970,235     $ 3,474   0.36 %
  Borrowings   508,731       5,251   2.08 %     305,116       2,275   1.50 %
  Subordinated debentures   37,695       1,164   6.23 %     36,315       1,124   6.24 %
  Total interest-bearing liabilities   2,901,004       13,206   0.92 %     2,311,666       6,873   0.60 %
 
  Non-interest-bearing liabilities  
  Demand deposits   600,214       495,262    
  Accrued interest payable and other liabilities   16,490       19,901    
  Stockholders' equity   463,156       350,305    
                                           
  Total average liabilities and stockholders' equity $ 3,980,864     $ 3,177,134    
                                           
  Net interest income/spread   $ 66,961   3.64 %   $ 52,766   3.69 %
  Net interest income as a percentage of average
  interest-earning assets(1)
  3.81 %   3.81 %
 
(1 ) Securities balances represent daily average balances for the fair value of securities. The average rate is calculated based on the daily average balance for the amortized cost of securities. The average rate is presented on a tax equivalent basis.
(2 ) Includes fees on loans. The inclusion of loan fees does not have a material effect on the average interest rate.
(3 ) Non-accruing loans for the purpose of the computations above are included in the daily average loan amounts outstanding. Loan totals are shown net of unearned income and deferred loan fees. The average rate is presented on a tax equivalent basis.

 

       
HORIZON BANCORP, INC.
Condensed Consolidated Balance Sheets
(Dollar Amounts in Thousands)
       
  June 30   December 31
  2018   2017
  (Unaudited)    
Assets      
Cash and due from banks $    69,018     $ 76,441  
Investment securities, available for sale     526,195       509,665  
Investment securities, held to maturity (fair value of $206,730 and $201,085)     209,767       200,448  
Loans held for sale     3,000       3,094  
Loans, net of allowance for loan losses of $17,071 and $16,394     2,907,445       2,815,601  
Premises and equipment, net     75,063       75,529  
Federal Home Loan Bank stock     18,105       18,105  
Goodwill     119,880       119,880  
Other intangible assets     11,359       12,402  
Interest receivable     12,993       16,244  
Cash value of life insurance     76,576       75,931  
Other assets     47,210       40,963  
Total assets $    4,076,611     $ 3,964,303  
Liabilities      
Deposits      
Non-interest bearing $    615,018     $ 601,805  
Interest bearing     2,401,145       2,279,198  
Total deposits     3,016,163       2,881,003  
Borrowings     524,846       564,157  
Subordinated debentures     37,745       37,653  
Interest payable     1,441       886  
Other liabilities     25,881       23,526  
Total liabilities     3,606,076       3,507,225  
Commitments and contingent liabilities      
Stockholders' Equity      
Preferred stock, Authorized, 1,000,000 shares, Issued 0 shares   -       -  
Common stock, no par value, Authorized 99,000,000 shares (1)      
Issued, 38,387,709 and 38,323,604 shares (1),
Outstanding 38,362,640 and 38,294,729 shares (1)
  -       -  
Additional paid-in capital     275,587       275,059  
Retained earnings     205,535       185,570  
Accumulated other comprehensive loss     (10,587 )     (3,551 )
Total stockholders' equity     470,535       457,078  
Total liabilities and stockholders' equity $    4,076,611     $ 3,964,303  
       
(1) Adjusted for 3:2 stock split on June 15, 2018      
       

 

       
HORIZON BANCORP, INC.
Condensed Consolidated Statements of Income
(Dollar Amounts in Thousands, Except Per Share Data, Unaudited)
       
  Three Months Ended   Six Months Ended
  June 30   June 30
  2018   2017   2018   2017
Interest Income              
Loans receivable $    36,308   $ 26,795     $    71,439   $ 51,586
Investment securities              
Taxable     2,563     2,244         4,993     4,650
Tax exempt     1,870     1,766         3,735     3,403
Total interest income     40,741     30,805         80,167     59,639
Interest Expense              
Deposits     3,920     1,721         6,791     3,474
Borrowed funds     2,679     1,338         5,251     2,275
Subordinated debentures     592     548         1,164     1,124
Total interest expense     7,191     3,607         13,206     6,873
Net Interest Income     33,550     27,198         66,961     52,766
Provision for loan losses     635     330         1,202     660
Net Interest Income after Provision for Loan Losses     32,915     26,868         65,759     52,106
Non-interest Income              
Service charges on deposit accounts     1,907     1,566         3,795     2,966
Wire transfer fees     180     178         330     328
Interchange fees     1,555     1,382         2,883     2,558
Fiduciary activities     1,818     1,943         3,743     3,865
Gains (losses) on sale of investment securities (includes $0 and $(3) for the              
three months ended June 30, 2018 and 2017, respectively, and $11
and $32 for the six months ended June 30, 2018 and
2017, respectively, related to accumulated other comprehensive
earnings reclassifications)
    -      (3 )       11     32
Gain on sale of mortgage loans     1,896     2,054         3,319     3,968
Mortgage servicing income net of impairment     511     359         860     806
Increase in cash value of bank owned life insurance     442     408         877     872
Death benefit on bank owned life insurance     154     -         154     -
Other income     469     325         1,278     376
Total non-interest income     8,932     8,212         17,250     15,771
Non-interest Expense              
Salaries and employee benefits     13,809     12,466         28,182     24,175
Net occupancy expenses     2,520     2,196         5,486     4,648
Data processing     1,607     1,502         3,303     2,809
Professional fees     376     535         877     1,148
Outside services and consultants     1,267     1,265         2,531     2,487
Loan expense     1,525     1,250         2,782     2,357
FDIC insurance expense     345     243         655     506
Other losses     269     78         415     128
Other expense     3,224     2,953         6,548     5,751
Total non-interest expense     24,942     22,488         50,779     44,009
Income Before Income Tax      16,905     12,592         32,230     23,868
Income tax expense (includes $0 and $(1) for the three months ended              
June 30, 2018 and 2017, respectively, and $2 and $11 for the six
months ended June 30, 2018 and 2017, respectively, related to
income tax expense from reclassification items)
    2,790     3,520         5,311     6,572
Net Income $    14,115   $ 9,072     $    26,919   $ 17,296
Basic Earnings Per Share (1) $    0.37   $ 0.27     $    0.70   $ 0.52
Diluted Earnings Per Share (1)     0.37     0.27         0.70     0.51
               
(1) Adjusted for 3:2 stock split on June 15, 2018              

  

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