Horizon Bancorp : Announces Record 2015 Net Income

(NASDAQ: HBNC) – Horizon Bancorp today announced its unaudited financial results for the three and twelve-month periods ended December 31, 2015.

SUMMARY:

• Net income for the year ending December 31, 2015 was $20.5 million or $1.89 diluted earnings per share.
• Excluding merger expenses, gain on sale of investment securities and the death benefit on bank owned life insurance, net income for the year ending December 31, 2015 increased 29.0% compared to the year ending December 31, 2014 to $23.6 million or $2.18 diluted earnings per share.
• Net interest income for the year ending December 31, 2015 increased 18.7% or $11.8 million compared to the year ending December 31, 2014.
• Non-interest income for the year ending December 31, 2015 increased 15.7% or $4.1 million compared to the year ending December 31, 2014.
• Commercial loans surpassed $800.0 million during the fourth quarter of 2015 for the first time in the Company’s history, ending the year at $805.0 million.
• Total loans, excluding acquired loans, increased 10.7% or $148.0 million during the year ending December 31, 2015.
• Excluding merger expenses, gain on sale of investment securities and the death benefit on bank owned life insurance, return on average assets was 0.99% for the fourth quarter of 2015 and 1.00% for the year ending December 31, 2015.
• Excluding merger expenses, gain on sale of investment securities and the death benefit on bank owned life insurance, return on average common equity was 10.00% for the fourth quarter of 2015 and 11.36% for the year ending December 31, 2015.
• Non-performing loans to total loans as of December 31, 2015 were 0.95% compared to 1.62% as of December 31, 2014.
• Substandard loans totaled $25.2 million as of December 31, 2015, a decrease of $2.5 million from $27.7 million as of December 31, 2014.
• Horizon’s tangible book value per share increased to $16.53 at December 31, 2015, compared to $16.26 at December 31, 2014 and $14.97 at December 31, 2013.
• It is anticipated the entire $12.5 million in funds received through the Small Business Lending Fund will be paid off with cash from the holding company on February 1, 2016.
• Horizon Bank’s capital ratios, including Tier 1 Capital to Average Assets of 8.69% and Total Capital to Risk Weighted Assets of 12.68% as of December 31, 2015, continue to be well above the regulatory standards for well-capitalized banks.

Craig Dwight, Chairman and CEO, commented: “I am pleased to announce Horizon Bancorp’s 2015 results, a year in which a great deal was accomplished across the Company. During 2015, Horizon successfully integrated 15 new branches as part of the Peoples Bancorp acquisition, opened a new office in Carmel, Indiana and relocated our Greenwood South location to a new and expanded office. In addition, Horizon was able to continue our organic growth story by significantly increasing loans, core deposits and fee income during the year. The impact of these positive results was reflected through increases to core net income and diluted earnings per share during the fourth quarter and for the year ended December 31, 2015.”

Dwight continued, “Horizon’s growth drove a considerable increase in net income and earnings per share compared to 2014. Net income and diluted earnings per share, excluding non-core items, increased 34.4% and 7.8% during the fourth quarter of 2015, respectively. On a full year basis, net income and diluted earnings per share, excluding non-core items, increased by 31.2% and 15.3%, respectively. Organic growth, increased fee income and the additional scale provided through the Peoples acquisition enabled Horizon to overcome persistent margin pressure due to the low interest rate environment.”

“Although loan growth slowed in the fourth quarter, over the course of 2015 Horizon increased loan balances across all product types and geographic markets. Excluding loans acquired through the Peoples acquisition, total loans increased by 10.7% during the year. This accomplishment reflects the collective effort we take in accomplishing our goals and serving our customers.”

To reduce funding costs over the next four years, the Company currently plans to use the securities portfolio to redeem maturing long-term debt. As of December 31, 2015, $31.6 million of long-term debt is scheduled to mature in 2016, $47.5 million in 2017, $27.0 million in 2018 and $55.2 million in 2019. This deleveraging will help reduce the Company’s cost of funds and provide additional capital for growth.

“Loan and core deposit growth continues to be a critical defense against the lower re-pricing of interest-earning assets,” Dwight continued. “Horizon’s core net interest income decreased by six basis points from the sequential quarter and five basis points for the year ending December 31, 2015 compared to the prior year.” The following table presents Horizon’s core net interest margin, which excludes acquisition-related purchase accounting adjustments.

Horizon’s loan loss reserve ratio, excluding loans with credit-related purchase accounting adjustments, was .99% as of December 31, 2015.

Income Statement Highlights

Net income for the fourth quarter of 2015 was $6.2 million or $.51 diluted earnings per share compared to $4.9 million or $.51 diluted earnings per share in the fourth quarter of 2014. The increase in net income from the previous year reflects an increase in net interest income of $3.7 million, a decrease in provision for loan losses of $636,000 and an increase in non-interest income of $1.0 million, partially offset by an increase in non-interest expense of $3.6 million and income taxes of $551,000. Diluted earnings per share during the fourth quarter of 2015 compared to the same period of 2014 remained unchanged as a result of an increase in diluted shares due to the Peoples acquisition. Excluding acquisition-related expenses and purchase accounting adjustments and gain on sale of investment securities, net income for the fourth quarter of 2015 was $6.0 million or $.50 diluted earnings per share compared to $4.5 million or $.46 diluted earnings per share in the same period of 2014.

Net income for the year ended December 31, 2015 was $20.5 million or $1.89 diluted earnings per share compared to $18.1 million or $1.90 diluted earnings per share for the year ended December 31, 2014. The increase in net income from the previous year reflects an increase in net interest income of $11.8 million and an increase in non-interest income of $4.1 million, partially offset by an increase in the provision for loan losses of $104,000, non-interest expenses of $12.2 million and income taxes of $1.1 million. The decrease in diluted earnings per share reflects an increase in diluted shares due to the Peoples acquisition. Excluding acquisition-related expenses and purchase accounting adjustments, gain on sale of investment securities and the death benefit on bank owned life insurance, net income for the year ended December 31, 2015 was $21.7 million or $2.00 diluted earnings per share compared to $16.5 million or $1.74 diluted earnings per share for the year ended December 31, 2014.

Horizon’s net interest margin was 3.50% during the fourth quarter of 2015, down from 3.51% for the prior quarter and 3.64% for same period of 2014. The decrease in net interest margin compared to the prior quarter and the same period of 2014 was due to lower yields on new loans and re-pricing earning assets, partially offset by lower funding costs. Excluding acquisition-related purchase accounting adjustments, the margin would have been 3.38% for the fourth quarter of 2015 compared to 3.44% for the prior quarter and 3.49% for the same period of 2014. Interest income from acquisition-related purchase accounting adjustments was $695,000, $402,000 and $719,000 for the three months ended December 31, 2015, September 30, 2015 and December 31 2014, respectively.

Horizon’s net interest margin was 3.56% for the year ending December 31, 2015, down from 3.62% for the year ending December 31, 2014. Excluding interest income from acquisition-related purchase accounting adjustments, the margin would have been 3.42% for the year ending December 31, 2015 compared to 3.47% for same period of 2014. Interest income from acquisition-related purchase accounting adjustments was $3.0 million and $2.7 million for the years ended December 31, 2015 and December 31, 2014, respectively.

Residential mortgage lending activity during the fourth quarter of 2015 generated $2.2 million in income from the gain on sale of mortgage loans, a decrease of $54,000 from the same period of 2014. Total origination volume in the fourth quarter of 2015, including loans placed into portfolio, totaled $92.6 million, representing a decrease of 3.6% from the same period of 2014 of $96.0 million. Purchase money mortgage originations during the fourth quarter of 2015 represented 68.7% of total originations compared to 81.0% of originations during the previous quarter and 67.6% during the same period of the prior year.

Lending Activity

Total loans increased $372.4 million from $1.4 billion as of December 31, 2014 to $1.8 billion as of December 31, 2015 as mortgage warehouse loans increased by $15.3 million, residential mortgage loans increased by $182.5 million and consumer loans increased by $41.8 million. Commercial loans increased $130.7 million or 19.4% from $674.3 million at December 31, 2014 to $805.0 million at December 31, 2015.

Total loan balances in the Kalamazoo and Indianapolis markets continued to grow during the fourth quarter of 2015 to $173.2 million and $157.9 million, respectively, as of December 31, 2015. In the fourth quarter of 2015, Kalamazoo’s aggregate loan balances increased $6.5 million or 3.9%, and Indianapolis’ aggregate loan balances increased $6.7 million or 4.4%. Combined, these markets contributed $13.2 million in loan growth during the fourth quarter of 2015 or 4.1%.

The provision for loan losses was $342,000 for the fourth quarter of 2015 compared to $978,000 for the same period of 2014. The lower provision for loan losses in the fourth quarter of 2015 compared to the same period of the previous year was predominantly due to a specific reserve of $560,000 placed on one commercial real estate loan that was moved to non-accrual status during the fourth quarter of 2014. The provision for loan losses was $3.2 million for the year ended December 31, 2015 compared to $3.1 million for the same period of 2014. The higher provision for loan losses in the first twelve months of 2015 compared to the same period of 2014 was due to continued loan growth.

The ratio of the allowance for loan losses to total loans decreased to 0.83% as of December 31, 2015 from 1.19% as of December 31, 2014 due to an increase in total loans and a decrease in the allowance for loan losses from $16.5 million as of December 31, 2014 to $14.5 million as of December 31, 2015. The Peoples transaction added $224.4 million in loans without a loan loss reserve due to purchase accounting adjustments. The decrease in the allowance for loan losses was the result of two commercial loans that were charged off during the fourth quarter of 2015 in the amount of $1.1 million for which $1.4 million had previously been reserved as well as continued improvement in non-performing loans. As of December 31, 2015, the ratio of the allowance for loan losses to total loans, excluding loans with credit-related purchase accounting adjustments, was .99% compared to 1.29% as of December 31, 2014.

Non-performing loans totaled $16.7 million as of December 31, 2015 and $22.4 million as of December 31, 2014. Compared to December 31, 2014, non-performing commercial loans and consumer loans decreased by $4.9 million and $1.3 million, respectively, while non-performing real estate loans increased by $343,000. As a percentage of total loans, non-performing loans were 0.95% at December 31, 2015, down 67 basis points from 1.62% at December 31, 2014.

Expense Management

Total non-interest expense was $3.6 million higher in the fourth quarter of 2015 compared to the same period of 2014. The increase was primarily due to an increase in salaries and employee benefits costs of $1.5 million, net occupancy expense of $332,000, outside services and consultants expense of $286,000 and other expense of $760,000, reflecting overall company growth and the Peoples acquisition. One-time non-interest expense related to the Peoples acquisition totaled $525,000 in the fourth quarter of 2015.

Total non-interest expense was $12.2 million higher for the year ended December 31, 2015 compared to the same period of 2014. The increase was primarily due to an increase in salaries and employee benefits costs of $5.0 million, outside services and consultants expense of $2.5 million, other expenses of $1.6 million, net occupancy expenses of $793,000, loan expense of $609,000, data processing expense of $588,000, other losses of $502,000, professional fees of $339,000 and FDIC deposit insurance expense of $324,000 due to overall company growth and the Peoples acquisition. One-time non-interest expense related to the Peoples acquisition totaled $4.9 million for the year ended December 31, 2015.

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 of the net interest margin and the allowance for loan and lease losses excluding the impact of acquisition-related purchase accounting adjustments and net income and diluted earnings per share excluding the impact of one-time costs related to acquisitions, acquisition-related purchase accounting adjustments and other events that are considered to be non-recurring. 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, although 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.

About Horizon

Horizon Bancorp is a locally owned, independent, commercial bank holding company serving Northern and Central Indiana and Southwest and Central Michigan through its commercial banking subsidiary Horizon Bank, NA. Horizon also offers mortgage-banking services throughout the Midwest. Horizon Bancorp 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160125006542/en/