Horizon Bancorp Reports Lower Profit
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowMichigan City-based Horizon Bancorp Inc. (Nasdaq: HBNC) is reporting first quarter net income of $3.4 million, compared to $5.3 million during the same period the previous year. Chief Executive Officer Craig Dwight says a slowdown in residential mortgage lending affected the company's bottom line.
April 21, 2014
News Release
Michigan City, Ind. — Horizon Bancorp (NASDAQ: HBNC) today announced its unaudited financial results for the three-month period ended March 31, 2014.
SUMMARY:
• First quarter 2014 net income was $3.4 million or $.38 diluted earnings per share.
• Excluding fees related to the acquisition of SCB Bancorp, Inc., net income for the first quarter of 2014 was $3.6 million or $.40 diluted earnings per share.
• Net interest income, after provisions for loan losses, for the first three months of 2014 was $13.3 million compared with $13.9 million for the same period in the prior year.
• Horizon’s previously announced acquisition of SCB Bancorp, Inc. and its wholly-owned subsidiary, Summit Community Bank, headquartered in East Lansing, Michigan closed as scheduled on April 3, 2014.
• Horizon did not record a provision for the three months ended March 31, 2014 compared with a provision of $2.1 million for same period of 2013.
• Non-interest income was $5.5 million in first quarter 2014 compared with $7.5 million in the same period of 2013, reflecting a decrease of $1.7 million in gain on sale of loans and a decrease of $368,000 in gain on sale of investment securities.
• Total loans increased $34.0 million during the quarter to $1.1 billion at March 31, 2014.
• Commercial loans increased $23.4 million during the quarter or 4.6% to $528.6 million at March 31, 2014.
• Core deposits increased $67.7 million during the quarter or 6.7% to $1.1 billion at March 31, 2014.
• Horizon’s tangible book value per share rose to $15.52 at March 31, 2014, compared to $14.97 at December 31, 2013 and $14.64 at March 31, 2013.
• Horizon Bank’s capital ratios, including Tier 1 Capital to Average Assets of 9.51% and Total Capital to Risk Weighted Assets of 14.12% as of March 31, 2014, continue to be well above the regulatory standards for well-capitalized banks.
Craig M. Dwight, Chairman and CEO, commented: “We are very pleased to continue Horizon’s growth story this quarter by achieving solid loan and core deposit growth despite the highly competitive environment and tepid economic recovery. This growth speaks to the quality and dedication of our team to expand existing client relationships and source new business opportunities.” Dwight specifically noted the growth in commercial loans during the quarter which increased $23.4 million to $528.6 million at March 31, 2014. On an annualized basis this amounts to an increase of 18.6%. While Horizon experienced loan growth in a majority of the Bank’s markets, Kalamazoo and Indianapolis contributed $15.9 million or 46.8% of the $34.0 million in total loan growth during the first three months of 2014.
Dwight continued, “The slowdown in residential mortgage lending negatively impacted our results in the first quarter of 2014, continuing to validate Horizon’s four balanced revenue streams – business banking, retail banking, residential mortgage lending and wealth & investment management. In anticipation of the residential mortgage lending slowdown, we made significant investments in new market entries, employee talent, commitment to customer service guarantees and technology to provide the best in class service to our customers. Our results this quarter illustrate these investments are paying off. At the same time, our continued asset quality improvement has enabled the Bank to significantly reduce our provision for loan losses, reflecting the hard work of our collections and credit administration staff.”
Dwight noted the Bank continues to build core deposits to help maintain a low cost of funding. Core deposit accounts grew $67.7 million or 6.7% during the first quarter of 2014 to $1.1 billion compared with $1.0 billion as of December 31, 2013 and March 31, 2013.
On March 25, 2014, shareholders of SCB Bancorp, Inc. approved Horizon’s previously announced acquisition of SCB Bancorp, Inc. and its wholly-owned subsidiary, Summit Community Bank, headquartered in East Lansing, Michigan. The transaction closed as scheduled on April 3, 2014, and the systems integration is expected to be completed on April 26, 2014. Dwight commented, “This transaction reflects Horizon’s approach to looking for growth opportunities both organically and through strategic partnerships. By partnering with SCB Bancorp, Horizon added an exceptional group of employees to our staff and entered another significant market with tremendous potential. We are delighted to welcome Summit Community Bank to our team and look forward to them contributing to Horizon’s future success.”
Additionally, on February 28, 2014, Horizon completed the acquisition of 1st Mortgage of Indiana, adding an experienced group of high quality mortgage professionals to our Indianapolis presence.
Emerging Issues
Horizon has acquired land in Carmel and Fishers, Indiana with the expectation to build two full service offices in this Central Indiana growth market. Horizon has on board two seasoned bankers working from a loan production office to support our Carmel expansion efforts and has commenced a search for qualified and seasoned bankers in the Fishers market area.
Income Statement Highlights
Net income for the first quarter of 2014 was $3.4 million or $.38 diluted earnings per share compared to $5.3 million or $.58 diluted earnings per share in the first quarter of 2013. Excluding transaction expenses related to the acquisition of SCB Bancorp, Inc. of $311,000, net income would have been $3.6 million or $.40 for the first quarter of 2014. The decrease in net income for the quarter primarily reflects the decline in mortgage warehouse activity as well as a reduction in interest income from Heartland loan valuation discounts recognized at the time of acquisition being accreted and discounts recognized from loans paying off. Mortgage warehouse balances decreased from $143.6 million as of March 31, 2013 to $102.1 million as of March 31, 2014 and the gain on sale of mortgage loans decreased $1.7 million from $3.1 million in the first quarter of 2013 to $1.4 million in the first quarter of 2014. Interest income from the Heartland loan valuation discounts decreased by $1.6 million to $389,000 for the three months ending March 31, 2014 compared to $2.0 million for the three months ending March 31, 2013.
Horizon’s net interest margin was 3.48% during the first quarter of 2014, down from 4.10% for same period of 2013. Excluding the interest income recognized from the loan discounts, the margin would have been 3.38% for the three-month period ending March 31, 2014 compared to 3.62% for the three-month period ending March 31, 2013. The decrease in net interest margin was primarily attributable to a reduction in mortgage warehouse activity in the first quarter of 2014 compared to the first quarter of 2013 and lower yields on new and repricing earning assets.
Residential mortgage lending activity during the first quarter of 2014 generated $1.4 million in income from the gain on sale of mortgage loans, a decrease of $1.7 million from the first quarter of 2013 and an increase of $197,000 from the fourth quarter of 2013. Total origination volume in the first quarter of 2014 totaled $52.6 million, representing a decrease of 22.0% from the previous quarter of $67.4 million and a decrease of 41.2% from the first quarter of 2013 of $89.5 million. The reduction in the gain on sale of mortgages was due to a decrease in total origination volume, partially offset by an increase in the percentage earned on the sale of these loans. Purchase money mortgage originations during the first quarter of 2014 represented 70.6% o