Horizon Bancorp Profit Flat

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Michigan City-based Horizon Bancorp Inc. (Nasdaq: HBNC) is reporting third quarter net income of $5 million, compared to $4.8 million during the same period the previous year. Chief Executive Officer Craig Dwight believes momentum is continuing and the bank will keep prioritizing loan growth. October 22, 2014

News Release

MICHIGAN CITY, Ind. - Horizon Bancorp (Nasdaq: HBNC) today announced its unaudited financial results for the three and nine-month periods ended September 30, 2014.

SUMMARY:

Total loans, excluding mortgage warehouse loans, increased $54.2 million during the quarter or 18.1% on an annualized basis and $268.1 million during the first nine months of 2014 or 36.8% on an annualized basis.

Commercial loans increased $29.1 million during the quarter or 17.8% on an annualized basis and $172.2 million during the first nine months of 2014 or 45.6% on an annualized basis to $677.3 million as of September 30, 2014.

Third quarter 2014 net income was $5.0 million or $.51 diluted earnings per share.

Excluding costs related to the acquisition of SCB Bancorp, Inc. (“Summit”) of $124,000, net income for the third quarter of 2014 was $5.0 million or $.52 diluted earnings per share.

Net income for the first nine months of 2014 was $13.2 million or $1.39 diluted earnings per share.

Excluding costs related to the acquisition of Summit of $1.3 million, net income for the first nine months of 2014 was $14.0 million or $1.48 diluted earnings per share.

Tangible book value per share of $15.75 as of September 30, 2014 is the highest in the Company’s history.

Return on average assets was 0.96% for the third quarter of 2014 and 0.92% for the first nine months of 2014.

Return on average common equity was 10.95% for the third quarter of 2014 and 10.56% for the first nine months of 2014.

Non-performing loans to total loans as of September 30, 2014 were 1.47% compared to 1.70% as of December 31, 2013 and 2.09% as of September 30, 2013.

Loan loss reserves to total loans, excluding loans with credit-related purchase accounting adjustments, were 1.32% as of September 30, 2014.

Craig M. Dwight, Chairman and CEO, commented: “Horizon’s momentum continued into the third quarter of 2014 with core loan growth, excluding mortgage warehouse loans, of 4.6% for the three months ended September 30, 2014 or 18.1% on an annualized basis. Core loan growth for the nine months ended September 30, 2014 equaled 27.5% or 36.8% on an annualized basis. Horizon’s third quarter and year to date loan growth highlights our investments in people, technology, and larger markets paying off. With additional capacity for future growth and an improving economic picture, we believe Horizon is well positioned to create additional operating leverage in the future."

"The loan growth we have achieved has been a vital component in combating industry-wide net interest margin pressure as well as lower accretion income from acquisition-related purchase accounting adjustments," Dwight commented. "Excluding accretion income related to purchase accounting adjustments Horizon’s third quarter of 2014 net interest income increased $2.3 million or 17.2% compared to the same period of 2013."

Dwight explained the increase in provision for loan losses in the third quarter of 2014 to $1.7 million from $104,000 in the same period of 2013 by stating, “The increase in provision for loan losses was predominantly related to a $1.0 million charge-off associated with one commercial credit during the quarter. Additionally, the higher provision expense takes into account recent loan growth. Horizon’s disciplined credit culture has and will continue to guide us as we continue to make loan growth a priority moving forward.”

Horizon’s loan loss reserve ratio, excluding loans with credit-related purchase accounting adjustments, stood at 1.32% as of September 30, 2014. The table below details Horizon’s loan loss reserve ratio composition as of September 30, 2014.

Emerging Issues

Dwight noted the progress being made on the construction of Horizon’s Carmel, Indiana branch expected to open in the first quarter of 2015. Dwight concluded, “This new location will provide both tremendous retail and commercial opportunities for our team. Additionally, it will strengthen Horizon’s Central Indiana presence and provide a platform to deliver ‘Exceptional Service and Sensible Advice’ to consumers and businesses north of Indianapolis.”

Income Statement Highlights

Net income for the third quarter of 2014 was $5.0 million or $.51 diluted earnings per share compared to $4.8 million or $.52 diluted earnings per share in the third quarter of 2013. The increase in net income from the previous year reflects an increase in interest income primarily due to loan growth and an increase in noninterest income related to an increase in gain on sale of investment securities and gain on sale of loans. Horizon incurred a gain on the sale of securities of $988,000 during the third quarter as a result of an analysis that determined market conditions provided the opportunity to add gains to capital without negatively impacting long-term earnings. The sale of securities was also used to fund loan growth. These increases to net income were partially offset by an increase in provision expense and an increase in salaries and net occupancy expenses due to company growth. The decrease in diluted earnings per share reflects the increase in shares outstanding due to the shares issued to Summit shareholders as part of the transaction. Excluding transaction expenses related to the Summit acquisition of $124,000, net income would have been $5.0 million or $.52 diluted earnings per share for the third quarter of 2014.

Net income for the nine months ended September 30, 2014 was $13.2 million or $1.39 diluted earnings per share compared to $15.8 million or $1.72 diluted earnings per share for the nine months ended September 30, 2013. Excluding transaction expenses related to the Summit acquisition of $1.3 million, net income would have been $14.0 million or $1.48 diluted earnings per share for the first nine months of 2014.

Horizon’s net interest margin was 3.59% during the third quarter of 2014, down from 3.78% for the prior quarter and 3.78% for same period of 2013. The decrease in net interest margin compared to the prior quarter and the same period of the prior year was primarily due to lower yields on new loans and re-pricing earning assets and a decrease in interest income from acquisition-related purchase accounting adjustments. Excluding purchase accounting adjustments related to the 2012 Heartland Bancshares, Inc. and the 2014 Summit acquisitions, the margin would have been 3.50% for the third quarter of 2014 compared to 3.52% for the previous quarter and 3.52% for the same period of the prior year. Interest income from acquisition-related purchase accounting adjustments was $438,000, $1.2 million and $1.0 million for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively.

Horizon’s net interest margin was 3.62% for the nine months ending September 30, 2014, down from 4.06% for same period of 2013. Excluding interest income from acquisition-related purchase accounting adjustments, the margin would have been 3.47% for the nine months ending September 30, 2014 compared to 3.61% for same period of 2013. Interest income from acquisition-related purchase accounting adjustments was $2.0 million and $5.4 million for the nine months ended September 30, 2014 and September 30, 2013, respectively.

Residential mortgage lending activity during the third quarter of 2014 generated $2.2 million in income from the gain on sale of mortgage loans, a decrease of $384,000 from the previous quarter and an increase of $486,000 from the third quarter of 2013. Total origination volume in the third quarter of 2014, including loans placed into port