Michigan City-based Horizon Bancorp Inc. (Nasdaq: HBNC) is reporting fourth quarter net income of $4.1 million, down from $5.2 million during the same period the previous year. The banking company says its full-year 2013 profit of nearly $20 million is the highest in its history.
January 22, 2014
Michigan City, Ind. —
Summary and Highlights:
• Net income of $19.9 million for 2013 surpasses the $19.5 million earned in the prior year and represents the highest annual net income in the Company's history.
• Fourth quarter 2013 net income declined 20.4% compared to the same period in 2012 to $4.1 million or $.45 diluted earnings per share, with the decline primarily reflecting lower income from residential lending, including mortgage warehousing, as activity slowed during the quarter.
• Net income for the year ending December 31, 2013 rose 1.7% compared to the same period in 2012 to $19.9 million or $2.17 diluted earnings per share.
• On November 13, 2013, Horizon announced the acquisition of SCB Bancorp, Inc. and its wholly-owned subsidiary, Summit Community Bank, headquartered in East Lansing, Michigan. The transaction is expected to be completed in the second quarter of 2014, subject to regulatory and SCB Bancorp's shareholder approval.
• Net interest income, after provisions for loan losses, for 2013 was $59.5 million compared to $54.7 million for 2012, primarily reflecting commercial loan growth that helped offset lower mortgage warehouse revenue.
• Non-interest income declined 5.2% to $25.9 million for 2013 compared with $27.3 million for 2012, primarily reflecting a decrease in gain on sale of mortgage loans of $5.3 million, partially offset by an increase in service charges on deposit accounts, fees from debit and credit card interchange services and mortgage servicing income.
• The provision for loan losses decreased to $1.9 million for the year ended December 31, 2013 compared to $3.5 million for 2012.
• Non-performing loans decreased to $18.3 million as of December 31, 2013 from $23.8 million as of December 31, 2012, and substandard loans decreased to $34.7 million as of December 31, 2013 from $50.2 million as of December 31, 2012.
• Return on average assets was 0.93% for the fourth quarter of 2013 and 1.13% for the year ended December 31, 2013.
• Return on average common equity was 10.44% for the fourth quarter of 2013 and 12.86% for the year ended December 31, 2013.
• Tangible book value per share increased to $14.98 at December 31, 2013, compared to $14.82 and $14.23 at September 30, 2013 and December 31, 2012, respectively.
• Horizon Bank's capital ratios, including Tier 1 Capital to Average Assets Ratio of 9.25% and Total Capital to Risk Weighted Assets Ratio of 14.38% as of December 31, 2013, continue to be well above the regulatory standards for well-capitalized banks.
Craig M. Dwight, Chairman and CEO, commented: “We are extremely pleased to announce record 2013 earnings for the 14th consecutive year. This feat was accomplished despite a significant slowdown in residential mortgage activity during the second half of 2013. Our balanced approach of focusing on all four core banking revenue sources- business banking, retail banking, residential mortgage lending and investment management- proved invaluable to achieving these record results and will continue to be a critical component of our future success.”
“Throughout 2013, we continued to operate in a sluggish economy with highly competitive dynamics for quality asset growth. Given the environment, we aggressively sought ways to maximize growth opportunities while remaining disciplined and vigilant in our approach. By investing in good people, entering new markets and seeking strategic partnerships we continued to lay the foundation for future success while attaining record financial performance in the process.”
“As anticipated, the rise in interest rates slowed residential mortgage lending activity during the second half of 2013, affecting both our residential mortgage origination and mortgage warehouse revenue streams. Despite this slowdown, we made significant strides growing our commercial loan portfolio, low cost deposits and assets under management in our investment group. During 2013, commercial loans grew 9.7% to $505.2 million, non-interest bearing deposits grew 10.5% to $231.1 million and assets under management reached $899.0 million as of December 31, 2013. In addition, we reduced our non-performing loans by $4.2 million, or 18.7%, in the fourth quarter of 2013 allowing us to realize a negative provision for the quarter of $997,000.”
On November 12, 2013, the Company entered into an agreement to acquire SCB Bancorp, Inc. (“SCB”) and its wholly-owned subsidiary, Summit Community Bank, in a cash and stock merger. The acquisition is expected to close during the second quarter of 2014, subject to regulatory and SCB Bancorp, Inc. shareholder approval. Headquartered in East Lansing, Michigan, SCB, through its wholly-owned subsidiary Summit Community Bank, serves the greater Lansing area through two full-service banking locations. As of September 30, 2013, Summit Community Bank had total assets of $161.0 million.
Dwight noted, “We view the partnership with SCB Bancorp as an excellent opportunity to bring a top notch local banking team, strong customer base and a diverse economic market to the Horizon organization. The SCB acquisition, coupled with our recent investments in markets such as Indianapolis and Lake County, Indiana as well as Grand Rapids, Michigan, provides a tremendous foundation for growth in 2014 and beyond.”
“Horizon is also excited to announce the opening of a full-service branch in downtown Indianapolis, Indiana and a new high school branch in Michigan City, Indiana. Our current team in the Indianapolis loan production office will move to this new full-service location in late January of 2014. The new high school branch, also scheduled to open in January of 2014, will employ local students and provide them a future career path in banking.”
Income Statement Highlights
Net income for the fourth quarter of 2013 decreased 20.4% to $4.1 million or $.45 diluted earnings per share, compared to $5.2 million or $.56 diluted earnings per share in the fourth quarter of 2012. The decrease in net income for the fourth quarter primarily reflects the decline in mortgage warehouse activity as mortgage warehouse balances decreased from $251.5 million as of December 31, 2012 to $98.2 million as of December 31, 2013 and the decrease in gain on sale of mortgage loans of $2.8 million from $4.0 million in the fourth quarter of 2012 to $1.2 million in the fourth quarter of 2013.
Net income for the year ended December 31, 2013 increased 1.7% to $19.9 million or $2.17 diluted earnings per share, compared to $19.5 million or $2.30 diluted earnings per share for the year ended December 31, 2012. The decline in earnings per share reflects the increase in weighted average diluted shares outstanding resulting from the Heartland acquisition, which occurred during the third quarter of 2012.
The Company's net interest margin was 3.60% during the three-month period ended December 31, 2013, compared with 4.16% for the three-month period ending December 31, 2012. Interest income during the fourth quarter of 2013 included approximately $850,000 of interest income from Heartland loan valuation discounts recognized at the time of acquisition being accreted and discounts recognized from loans paying off compared to approximately $1.5 million in the fourth quarter of 2012. Excluding the interest income recognized from the loan discounts, the margin would have been 3.39% for the three-month period ending December 31, 2013 compared to 3.81% for the three-month period ending December 31, 2012. The decrease in net interest margin was primarily attributable to a reduction in mortgage warehouse activity in the four